Bangkok Life Assurance

Value stock. First year premium rebounds, provision decreases, investment grows BUY

Bangkok Life Assurance Plc (BLA)

To recover in 2013 from first year premium and portfolio; provision decreases

According to a press conference of Thai Life Assurance Association (TLAA), gross

premium of the industry in 2012 was recorded at B391bn or the highest growth in 10

years at 19.1%yoy. Of the amount, B131m was first year premium income, which has

grown 32.5%yoy. AIA is still capturing the largest market share of total premium

income in 2012 at 26.32%, followed by MTL (12.49%), TLA (12.48%), SCBL (10.71%),

and BLA (8.85%). Top 10 insurance companies have total market share of 91.49%,

while the rest 8.51% is of 14 other companies. The growth of the industry has been

driven by a competition among insurance companies in developing products to meet

customers' demand and increasing selling capability through various channels, both

sale agents (57.3% of total premium income, growing 11.9%yoy) and Bancassurance

(36.7% of total premium income, growing 34.2%yoy). TLAA has also projected the

further growth of 15%yoy in total premium income in 2013, seeing an opportunity for

customer base growth as a portion of policyholders in Thailand is still very small

compared with other major countries in the region. For BLA, we project to bank to

benefit from the industry's growth in 2013. Moreover, the bank has returned to focus

more on the growth of first year premiums in 2013 after they have decelerated in the

past 2 years. Total premium income growth in 2012 is estimated at not lower than

18%yoy, making balance between savings life insurance premium (mainly through

bank branches) and whole life insurance premium (mainly through selling agents). At

the same time, the portion of premium reserves compared with total premium income

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. In addition, brightening market in 2013 will also boost the bank's profit from

investment business; average ROI is estimated at only 5.30%, but it might have higher

upside which we have still not included in our forecast. Overall, we believe net profit in

2013-2014 would return to grow by 40.9%yoy and 22.8%yoy, respectively, after

staying flat in 2012.

Q4 2012's profit to rebound qoq. First year premium grows, provision softens

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 already 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.

Value stock. Hold and wait for bright future in next 2-3 years

We reiterate our BUY recommendation. 2013's fair value is B76.50 (embedded value in

2013 is B25 while VNB in 2013 is B51.50).