Thaire Life Assurance

Thaire Life Assurance Plc (THREL)

Investment thesis
We expect THREL to sustain strong profit growth through 2H14, led by rising insurance premium revenue, a stable ROI and a well-managed combined ratio. Although our earnings projections remain Bt450m for FY14, up 18% YoY, and Bt510n for FY15, up 13% YoY, we have raised our economic value calculation to Bt19.6, prompted by the firm’s dividend payout policy increase from 40% to 70%. Thus, we now model Value of New business (VNB) at Bt16.21/share (previously Bt10.19/share). Given a bigger VNB and a promising FY15 outlook, our rating jumps from HOLD to BUY with a new YE14 target price of Bt19.60, pegged to embedded value per share of Bt3.41 and VNB/share of 16.21.
2H14 premium growth to accelerate HoH, led by non-conventional
1H14 total insurance premiums rose 20% YoY to Bt731m, led by non-conventional products. Total premiums can be categorized into conventional and non-conventional products in the proportions 70:30. We conservatively model that FY14 total premiums will rise 14% YoY, in line with life assurance industry growth. Its 1H14 premiums represent 47% of our full-year forecast. Note that THREL’s market share of re-life assurance rose to 23% from 21% in FY13.
Combined ratio to range 71-73% in FY14 and FY15
Management expects the FY14 combined ratio to stay at 71-73%, up slightly from 69.6% last year, led by rising claims on non-conventional products (life assurance for senior citizens), which were launched during the last four years, and an increasing commission ratio for conventional products, due to greater competition. We assume combined ratios of 71% in FY14 and 72.2% in FY15, in line with guidance.
ROI estimated at about 5% for 2H14
Given THREL’s capital-raising of Bt380m in 4Q13 and fast-growing total premiums in 1H14, we expect its earnings assets (mostly fixed-income instruments) to expand 50% QoQ to Bt1.8bn. Given a rising SET index and investment in high-yield assets (PROFs and infrastructure funds), its ROI should be 5% in 2H14—above the 3.6% posted for 1H14 (due to a weak stock market). Note that THREL has an FY14 ROI target of 5% (in line with our model). We expect FY14 investment income to jump 62% QoQ to Bt95m from Bt58m in FY13, due to a better stock market and higher yielding assets in the portfolio.
Solid capital base enables bigger dividend payout
THREL’s capital adequacy ratio was 600% at end-June and should expand modestly during the next couple of years. Management announced a dividend payout policy increase from 40% to 70%. As such, our VNB model rises from Bt10.19/share to Bt16.21/share. Because of the bigger VNB/share, we have upped our YE14 economic value calculation from Bt13.60 to Bt19.62, pegged to embedded value of Bt3.41+VNB of Bt16.21.