Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA)

4Q13 profit was 26% below our estimate
BLA posted 4Q13 earnings of Bt905m, up 19% YoY but down 18% QoQ. The result was 26% below our estimate and 18% short of the Bloomberg consensus, attributable to heavier payouts than modeled (chiefly for maturing endowment policies). BLA’s payouts shot up by 97% YoY and 66% QoQ to Bt3.5bn, which was 41% above our assumption. FY13 profit increased 18% YoY to Bt4.4bn, which represents 94% of our FY13 projection of Bt4.7bn.
Results highlights
Total premiums for the quarter rose 8% YoY (flat QoQ) to Bt8.4bn. During 4Q13, BLA sets provisions for its life policy reserve equal to 50% of total premiums (its loss ratio), down from 65% in 3Q13 and 64% in 4Q12. Note that its provision/total premium ratio was below our assumption of 65%, due to much heavier payouts on maturing policies than expected. BLA‘s payouts jumped by 97% YoY and 66% QoQ to Bt3.5bn, which was 41% above our expectation and far outweighed the effect of lower provision-setting. As such 4Q13 earnings were 26% short of our estimate.
4Q13 ROI was 4.6%, down from 5.1% in 3Q13 and slightly below our assumption of 4.8%. Note that investment income was Bt1.8bn, up 20% YoY (but down 7% QoQ), driven by investment asset expansion and good equity portfolio management. BLA booked a net investment gain of Bt89m for the quarter, up 40% YoY but down 16% QoQ.
Outlook
We expect the firm to emphasize sales of longer-term endowment products and credit protection products in 1Q14 in order to boost margin and reduce provisioning needs for its life policy reserve. Management has set an FY14 total premium growth target of above 15%.   
What’s changed?
Our FY14 earnings forecast stands unchanged at Bt5.4bn. We will attend the firm’s analyst meeting on Friday, after which we may possibly adjust our model.
Recommendation
BLA’s ongoing focus transition from shorter term endowment policies to longer term policies and credit protection products will boost its profitability, as it won’t have to set such heavy provisions for the life policy reserve. Given its favorable long-term earnings outlook, we maintain our BUY rating with a YE14 target price of Bt75, based on embedded value of Bt34.4/share and VNB of Bt40.6/share.