Bangkok Life Assurance

Bangkok Life Assurance Plc (BLA) 

 

Investment thesis

BLA has mainly focused on higher margin products, such as whole life, longer-term endowment and credit life policies. All products need lower provisions for their life-policy reserves than we currently assume in our model. This would mean scope for upside to our projections (as would higher long-term bond yields in 4Q15). However, taking a conservative stance, we have maintained our FY15 profit forecasts of Bt4.4bn for FY15, up 65% YoY, and Bt5bn for FY15, up 14% YoY. Our BUY rating stands with a YE15 TP of Bt67, pegged to embedded value of Bt31.26/share and total VNB of Bt35.8.

Emphasis on bottom-line growth, led by high-margin products

BLA has switched focus from short-term policies last year to long-term policies (whole life, credit life, pension funds and long-term endowments such as Gain 1st 245 plus) in FY15. The change implies that it intends to drive its bottom line instead of the top (via high-margin products). Note that we forecast its FY15 FYP and total premium will drop 10% and 8%, respectively. Lately, BLA, in collaboration with Thaire Life (THREL), sold its first healthcare product (Health Plus) in 3Q15. We have not plugged this product into our model.

Provision returns to normal after extra item in FY15

The emphasis on long-term products with fatter margins will mean lower provisions for the life-policy reserve in FY15, following heavy FY14 provisions of Bt41bn (about 80% of total premiums). BLA does not expect to set an extra provision for interest-rate risk in the remaining periods of the year after it set Bt1.73bn in 1Q15 and Bt3.3bn last year. It guides for 2H15 provisions to come in the range of 67-70% of total premiums (against 65% in 1H15 and 80% in FY14). Note that we expect provisions to equal 70% of total premiums in FY15. BLA has no plan to reverse the provision for interest-rate risk into revenue if the interest rate trend turns around in late FY16. 

Maintain ROI target of 4.8% in FY15 and FY16

Management reaffirmed FY15 ROI of 4.8% (excluding investment gain) following 5.5% in 1H15. The possibility of high bond yields late this year would present BLA with a chance to accrue more long-term bonds. The firm invests Bt20bn (11% of total investment) in foreign-currency-denominated bonds that yield about 6%. Note that we forecast BLA to have FY15 ROI of 4.8% (excluding investment gain).

Robust CAR to ensure long-term expansion with no cash call

Given its greater emphasis on higher margin products, BLA’s YE15 CAR is expected to stay over 400% from 410% at YE14. The management guides that a strong CAR will allow BLA to be more aggressive with higher-yield assets (such as structured notes, REITs and infrastructure funds) in order to strengthen its ROI as well. Its CAR was 347% in 2Q15.