Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)

2Q13 profit beats projection. Premium income drops, but reserve declines more
BLA announced 2Q13 net profit at B1.45bn, 44% higher than previous projection of B1bn,
or the growth of 57.6%qoq and 44.8%yoy due mainly to a decrease in underwriting
expense by 34%qoq and 10.2%yoy in this quarter. Premium reserve dropped 40.8%qoq
and 17%yoy – as projected. The premium reserve expense to total premium income ratio
in 2Q13 decrease to only 64.4% from 76.3% in the previous quarter – slightly better than
our projection at 68% because the total premium income declined only 29.9%qoq and
8.8%yoy (while we had projected for a decrease of as much as 34.5%qoq and 14.8%yoy).
The contraction in the total premium income resulted from a decrease in first year
premium in 2Q13 after the bank issued a short-term product – Gain 1st 263 (3 years
premium payment for 10 years protection) through Bancassurance in 1Q13, which
received good responses from clients and allowed the bank to increase its market share of
first year premium to the 2nd largest and total premium the 4th largest of the total
market share. This is in line with the company’s policy to increase the market share to top
5 ranks, thus helping alleviate pressure about total premium in 2Q13. Moreover, total
premium income growth in 1H13 was as high as 17.6%yoy, close to FY2013 target at
17.3%yoy. The company has planned a more aggressive marketing strategy in 4Q13, a
festive season. Renewal year premium income in 2Q13 also decreased as a result of
maturation of long-term product Gain 1st 330 sold in the past 4 years. This factor also
helped decrease pressure about premium reserve expense of BLA in this quarter.
However, income and profit from investment in 2Q13 shrank slightly by 1.4%qoq (but still
grew 24.3%yoy) – worse than expected. ROI fell to only 5% from 5.14% in 1Q13, lower
than our projection at 5.3%. Interest income from bonds has grown following enlarging
portfolio, but profit and dividend from bond portfolio in this quarter decreased due to the
capital market’s fluctuation and because it was not a dividend payment season. Effective
tax rate in 2Q13 stood at 18.2%, up from 16.6% in 1Q13 and higher than our projection
of 17%, but still low comparing to the average quarterly rate in the past several years
after the company changed to use a policy of deferred tax.
- 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. Net profit in 1H13 is anticipated to comprise 48%
of our FY2013 forecast. We believe BLA would launch an aggressive marketing strategy in
4Q13 to boost the net profit in 2H13 to stand close to that of 1H13. 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), under an assumption
for total premium reserve to premium income ratio of 64-65%. The ratio in 1H13 was as
high as 71%, which means it 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% from 31% in 2012.
- BUY. Share price already undergoes correction. 2Q13 earnings are stimulus
We upgrade from “hold to receive dividend” to “buy”. The share price has substantially
undergone correction, against the more stable business growth. The current share price
has 34% upside from 2013 fair value at B80.15 (embedded value in 2013 is B28.56 while
VNB in 2013 is B51.59).