Thaire Life Assurance

Thaire Life Assurance Plc (THRE) 

 

Investment thesis

We have cut our THREL earnings forecast 6% to Bt385 in FY15 and by 20% to Bt445m in FY16. This is attributable to a rising trend of combined ratios than earlier modeled from bigger claims on conventional and non-conventional products. We raise our FY15 and FY16 combined ratio forecast to 79% in FY15 and 79.6% in FY16 from old 78.5% in both years. With the earnings revision, we have come up with the YE16 target price for THREL of Bt12.3/share, pegged to value of new business (VNB) of Bt8.61/share and embedded value of Bt3.67/share. We expect it to achieve steady earnings growth of 16% in FY16 and 12% in FY17, driven by strong sales of non-conventional products to offset rising combined ratios. Our BUY rating stands.

Premium looks promising despite industry slowdown

We forecast THREL to achieve life-assurance premium growth of 10% in both FY15 and FY16 following about 14% in FY14. That would be above the Thai Life Assurance Association’s released number for industry growth of 7%. But, there is scope for upside in both years, led by sales of non-conventional products (up 40% during 9M15). Total premiums are categorized into conventional and non-conventional products in the proportion of 70:30. We model that in FY15, premiums for non-conventional products will rise 20% YoY and premiums for conventional, 7%. Management guides that the firm’s reinsurance market share will remain in the 23-24% range in FY15 and FY16.

Revise up combined ratio in FY15-FY16 … bigger claims

THREL management expects FY15 and FY16 combined ratios of 77-79%, on par with its released number of 79% in FY14, attributable to bigger claims on non-conventional products (life assurance for senior citizens), which were launched during the past seven years. Hence, we have raised our combined ratio forecast to 79% in FY15 and 79.6% in FY16 from old 78.5 in both years. Our new numbers are slightly above the management guidance.

FY15-FY16 ROI target at about 4.5%

Given less extra trading gain compared with last year in 9M15 and 4Q15, we expect THREL’s ROI (excluding investment gains) should be reported at a 16% contraction from last year. We expect FY15 ROI of 4.5% (including extra gains), which would be on par with management’s guidance. THREL’s FY15 and FY16 ROI targets are not less than 4.5% (our assumption is 4.5% in both years).

Model for poor 4Q15 profit on bigger claims 

We expect THREL to deliver 4Q15 earnings of Bt96m, down 16% YoY caused by bigger combined ratio (mostly underwriting expenses and commissions). The 4Q15 combined ratio should post a rise to 83.6% from 83.4% in 4Q14. We also expect 4Q14 premium growth of 3% YoY, led by non-conventional product sales.