Bangkok Life Assurance

Signal growth in 2013

Bangkok Life Assurance Plc (BLA)

4Q12's profit to grow qoq. First-year premium thrives, provision decreases

We estimate BLA's net profit in 4Q12 at B972m, growing 15.1%qoq and

significantly yoy due to following contributions. 1) Total premium income in 4Q12

is projected to enlarge by 4.9%qoq (but still decrease 5.7%yoy) due mainly to

the growth of first year premium income from the bank's introduction of Gain 1st

350, a savings life insurance product (5 years premium payment for 10 years

protection) to boost total premium income in 4Q12 through Bancassurance

again. At the same time, for insurance product sale through selling agents,

remarkable growth has also been seen in first year premium (focusing on whole

life products). Consequently, overall first year premium growth has exceeded the

target of 12%yoy. On the contrary, renewal year premium has contracted

substantially in this quarter as a result of maturation of some short-term

premiums sold in the past 2 years. This is a main factor depressing total

premium growth in 2012 to only 10.7%, greatly lower than the target of

18%yoy. 2) Premium reserves in 4Q12 are anticipated to decrease to 66% of

total premium from 66.9% in 3Q12 as maturation of some premiums has helped

decrease the reserves. However, the reserves have are still high from a launch of

the above-mentioned new short-term savings products in this quarter. 3)

Income and profit from investment in 4Q12 are estimated to grow significantly

by 13.9%qoq and 46.8%yoy. Interest income and dividend income have grown

12.8%qoq, while profit from securities trading has shifted 27.1%yoy, with

average ROI of 5.88%, up from 5.43% in the prior quarter. However, despite

pressure from a 26.5%qoq increase in income tax expense or an average income

tax rate of 31%, up from 29% in 3Q12, the bank still has surplus premium

reserves of 62% of the level determined by the Revenue Department, which is

not counted as a tax expense. Consequently, overall, we project BLA's net profit

2012 to rise to B3.54bn, growing 3.5%yoy, higher than the current forecast by

2%.

Up 2013-2014's forecast. To emphasize on first-year premium. Provision decreases

We upgrade our net profit forecast for 2013-2014 from currently respectively by

30.2% and 59.9%. As a result, net profit growth in the years is projected

significantly at 40.9%yoy and 22.8%yoy respectively, compared with the

previous forecast for the thin growth. The business strategy in 2013 would be

more aggressive after the bank took 2 years in adjusting its business that it lost

market share in first year premium sale through Bancassurance to its rivals. For

this year, the bank would keep its target for total premium income growth at the

same level as 2012 at no lower than 18%yoy, making balance between savings

life insurance premium (mainly through bank branches) and whole life insurance

premium (mainly through selling agents). We believe the portion of premium

reserves would decrease to 65% as renewal year premiums are projected to

shrink more than B2bn from maturation of short-term premium sold in the past

which will make the reserves decrease and pave way for the bank to focus more

on first year premium growth.

Upgrade to BUY. New 2013's fair value is B76.50

We upgrade our recommendation to Buy (from hold to receive dividend). New

2013's fair value is B76.50, up from B49.80 (embedded value in 2013 is B25,

while VNB in 2013 is B51.50), implying 20% upside from the current share price.

We believe BLA would be able to outperform the market from its more

aggressive business strategy.