Thaire Life Assurance

Thaire Life Assurance Plc (THREL)  

 

4Q14 profit was 34% above our estimate

THREL posted 4Q14 earnings of Bt114m, up by 58% YoY and 101% QoQ. The result was 34% over our estimate and the Bloomberg consensus, due to a bigger gain on investments than assumed of Bt50m. Hence, its FY14 earnings dipped 3% YoY to Bt372m, which represents 108% of our earlier estimate. 

Results highlights

Premium revenue rose 22% YoY (but dipped 4% QoQ) to Bt419m, led by sales of non-conventional products. Note that THREL’s conventional premium revenue grew 13% YoY to Bt306m, whereas its non-conventional premium revenue jumped 29% YoY (but dropped 13% QoQ) to Bt113m. The firm set provisions of Bt228m for its life policy reserve (loss ratio+claim) in 4Q14, equal to 54.5% of total premiums (up from 43.9% in 4Q13 and 41% in 3Q14). The reason was that THREL received an unexpected claim incurred on a credit life reinsurance policy.

Its commission ratio fell to 27.1% in the quarter from 45.5% in 3Q14 and 31.7% in 4Q13. The decline was due to strong sales growth for both conventional and non-conventional products. As such, THREL’s combined ratio declined to 83.4% in 4Q14 from 89.0% in 3Q14, but rose from 78.7% in 4Q13. 

ROI jumped to 19.1% in 4Q14 from 4.9% in 3Q14, driven by the Bt50m gain on investments. Thus, revenue from investments jumped by 167% YoY and 303% QoQ to Bt64m.

Outlook

We expect THREL to deliver higher YoY net insurance premium revenue growth for 1Q15 and we don’t anticipate extra expenses on claims or losses on non-conventional products for the quarter (as were booked during 2H14). 

What’s changed? 

Our earnings forecasts stand at Bt459m for FY15, up 24% YoY, and Bt520m for FY16, up 13% YoY.

Recommendation

THREL will sustain strong profit growth through FY15, led by rising insurance premium revenue, an ROI of 5% and a well-managed combined ratio, we believe. Lower provisioning requirements for the life policy reserve and commission ratio than currently assumed would mean scope for upside to our earnings forecasts. We maintain a BUY rating with a YE15 target price of Bt19.6, pegged to embedded value of Bt3.46/share and total VNB of Bt16.34.