Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)

2Q13 profit was 31% above our forecast
BLA posted 2Q13 earnings of Bt1.45bn, up by a muscular 45% YoY and 58% QoQ. The result was 30% over our estimate and 16% ahead of the Bloomberg consensus, attributable to lower provisioning for the life policy reserve than modeled. Note that BLA’s 2Q13 provisions equaled 64.4% of its total insurance premiums; we had assumed 68%. 1H13 profit rose 18% YoY to Bt2.4bn, which represents 51% of our forecast of Bt4.7bn.
Results highlights
2Q13 FYPs (including single-premium policies) dived 53% YoY to only Bt1.3bn. As such, total premiums for the quarter fell by 30% YoY and 9% QoQ to Bt9.2bn. During 2Q13, BLA sets provisions for its life policy reserve equal to 64.4% of total premiums, down from 76.3% for 1Q13 and 70.8% in 2Q12. Provisioning plummeted because the firm shifted its product mix emphasis from endowment policies to whole life and credit protection policies.
ROI slipped to 4.9% in 2Q13, which was slightly below our estimate of 5%, due mainly to lower dividends from investments in equities. Note that investment income was Bt1.7bn, up by 26% YoY and 2% QoQ, driven by investment asset expansion and good equity portfolio management. BLA booked a net investment gain of Bt173m, up 40% YoY (but down 3% QoQ).
Outlook
We expect BLA to launch more whole life and credit protection products in 2H13 in order to boost margin and reduce provisioning needs for its life policy reserve. The firm maintains FY13 growth targets of 41% for FYPs and 18% for total premiums. Note that BLA’s 1H13 FYPs expanded 39.3% YoY to Bt6.3bn, while its 1H13 total premiums rose 17.6% YoY to Bt22.4bn.  
What’s changed?
We maintain our FY13 earnings forecast at Bt4.7bn. 1H13 profit accounts for 51% of our current full-year projection. We would like to visit BLA next week before making any changes to our model.
Recommendation
BLA’s ongoing focus transition from endowment products to whole life and credit protection will boost its profitability, as it won’t have to set such high provisions for the life policy reserve as the 76.3% booked for 1Q13. Given its favorable long-term earnings outlook, we maintain our BUY rating with a YE13 target price of Bt75, based on embedded value of Bt30.3/share and VNB of Bt44.8/share.