Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)

2Q13 profit to grow qoq despite lower premium income, thanks to reserve decrease and investment portfolio
We estimate BLA’s net profit in 1Q13 at B1bn, growing 9.4%qoq and 24.9%yoy due to
following contributions. 1) Underwriting expense in 2Q13 is projected to drop
33.7%qoq and 9.7%yoy, mainly from a decrease of 41.6%qoq and 18.1%yoy in total
premium reserve in 2Q13. Total premium reserve to premium income ratio in 2Q13
shrank to 68% from 76.3% in the previous quarter. First year premium income in this
quarter has not grown as aggressively as 1Q13, in which there was a sale of a short-term
product – Gain 1st 263 (3 years premium payment for 10 years protection) through
Bancassurance, which received good responses from clients. Total premium income in
2Q13 is estimated to contract as much as 34.5%qoq and 14.8%yoy, mostly a decrease of
first year premium income because in 1Q13 the company could increase market share of
the first year premium to the 2nd largest and total premium the 4th largest of the total
market share. The company’s policy is to increase the market share to top 5 ranks.
Moreover, total premium income growth in 1H13 is expected as high as 14.4%yoy, close
to FY2013 target at 17.3%yoy. The company has planned a more aggressive marketing
strategy in 4Q13, a festive season, in order to boost the income growth. Renewal year
premium income in 2Q13 is also anticipated to decrease as a result of maturation of longterm
product Gain 1st 330 sold in the past 4 years. 2) Income and profit from
investment in 2Q13 are estimated to grow continuously by 5.1%qoq and
38.8%yoy. Average ROI is estimated as high as 5.32. Interest income from bonds has
grown following enlarging portfolio as a benefit from aggressively growing total premium
income in 1Q13. 3) Effective tax rate in 2Q13 is projected to stabilize from the
prior quarter at 17% after the company changed to use a policy of deferred tax, which
means the company can make the reserve surplus of 65% a deferred tax asset in the
balance sheet, which would alleviate concerns about the expense recognition in the
income statement.
- Maintain forecast. Accelerate business growth sustainably in 2013
We maintain our earnings forecast for FY2013-2014, with the net profit growth of
50.1%yoy and 23.9%yoy, respectively. Even though net profit in 1H13 would comprise
only 39% of our FY2013 forecast, aggressive growth is foreseen in 4Q13 to boost the
income growth to the target. Moreover, there would be a better balance between an
increase of savings life insurance premium (through bank +45%yoy) and whole life
insurance premium (through sales agents +27%yoy), under an assumption for total
premium reserve to premium income ratio of 64-65%. The ratio is expected as high as
73% in 1H13. This means the ratio would decrease in 2H13 from short-term life insurance
premium of more than B2bn from maturing products, which would open a chance for the
company to focus more on first year premium growth. Tax expense is also anticipated to
decrease significantly with effective tax rate estimated at only 19% (16% in 1H13) from
31% in 2012.
- Hold despite significant price correction. To review again after earnings report
We reiterate our HOLD recommendation. Although the share price has substantially
undergone correction until there is 27% upside from 2013’s fair value at B80.15
(embedded value in 2013 is B28.56 while VNB in 2013 is B51.59), there is still a risk in
short-term investment because of the market volatility. We will review our
recommendation again after 2Q13 earnings report.