Bangkok Life Assurance

Good recovery this year, true - but overvalued SELL

Bangkok Life Assurance Plc (BLA)

Overvalued; Maintain Sell. We continue to believe that the market has overdone

the expected strong earnings recovery in 2013F brought by falling life policy reserve and

effective tax rate and maintain Sell, though our target price goes up to Bt55 from Bt51

to reflect the upward revision of our ROI assumption. Our target price is based on

2013F embedded value (EV) plus 12x average 2013F value of one-year new business.

2012A total premiums in line but new business below expectation. According to

the Thai Life Assurance Association, BLA's 2012 total premiums rose 10%, in line with

our forecast and its own target. However, new business premiums for 2012 rose

merely 6%, below its target of 9% and our forecast of 8%, blamed on below-target

sales of whole life products, with bancassurance just introduced this year. Renewal

premiums for 2012 grew 11%, higher than the company's guidance of 9%. To catch up

with its target, it is focusing on selling savings products including "Gain 1st 350" (five

years of premium payments for 10 years of life coverage) via bancassurance, leading to

a 21% QoQ growth in new business premium for 4Q12. A 5% QoQ decrease in renewal

premiums in 4Q12 came mainly from the "Gain 1st 248" product (two years of premium

payments with 10-year life coverage) issued in late 2010. Total premiums for 4Q12

were stagnant QoQ. See details in Figure1.

Raised ROI assumptions. We raised our assumption on return on investment (ROI)

for both yield on investment and investment gain. We raised our forecast of yield on

investment by 10 bps to 5percent for 2012F and 20 bps to 5.1percent for 2013F, as L-T bond yield

has recovered more than we had expected after a sharp fall in October. We had earlier

thought that easing monetary policy in several countries - including Thailand - would

lead to a fall in bond yield. However, L-T bond yield soared in November-January,

mainly attributable to the unchanged policy rate and rising supply of government

bonds. We also raised our assumption on investment to reflect the stronger-thanexpected

SET rally.

Easing life policy reserve in 2013. We expect a strong recovery in 2013F, mainly from

easing life policy reserve and lower effective tax rate. It expects to be able to ease life

policy reserve to ~65percent for three reasons. 1) Premiums amounting to ~Bt2bn that

require a high reserve will mature in 2013. 2) It expects to have sufficient excess reserve

by YE2012. 3) It will continue to raise its exposure to life protection products and lower

the proportion of savings products, as life protection products carry a higher margin

and lower reserve than savings products. We conservatively forecast its life policy

reserve ratio to fall to 66.5% in 2013F from 67.5% in 2012F.

4Q12F preview: Big thanks to investment income. We forecast 4Q12 earnings at

Bt891mn, and increase of 1092% YoY mainly on lower life policy reserve and 6% QoQ

mainly on investment income, thanks to L-T bond yield recovery and the strong stock

market rally. We look for stagnant underwriting earnings QoQ as a result of QoQ stable

premium income and an expected negative underwriting margin from an aggressive

sale of savings products to boost volume.