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Bangkok Life Assurance

Expect 11% QoQ profit rise for 4Q13

Bangkok Life Assurance Plc (BLA)

Investment thesis

We expect BLA to continue posting strong profit growth, led by rising total insurance premiums and investment asset expansion. Thus, our earnings projections remain Bt4.7bn for FY13, up 43% YoY, and Bt5.4bn for FY14, up 15% YoY. Lower provisioning requirements for the life policy reserve than currently assumed would mean scope for upside to our forecasts. We maintain a BUY rating with a YE14 target price of Bt75, pegged to embedded value of Bt34.40/share and total VNB of Bt40.6.

Anticipate 4Q13 earnings growth of 70% YoY

Our model indicates that BLA will report a 4Q13 profit of Bt1.2bn, up by 70% YoY and 11% QoQ. The assumed QoQ earnings growth is largely due to seasonality—higher renewal year premium income—even though we expect higher proportionate provisioning for life policy reserve for the quarter. 4Q13 total premium (including single-premium sales) revenue is estimated at Bt8.6bn, up by 2% QoQ and 11% YoY.

Heavier proportionate provisioning in 4Q13

The focus temporarily shifted to endowment products (mostly single-premium products) in 4Q13, which would have prompted BLA to set somewhat heavier provisions for its life policy reserve as a percentage of total premium revenue. We expect a ratio of 66percent for the quarter, up from 64percent for the same period last year and 65% in 3Q13. That ratio is expected to decline to about 65percent for 1Q14 onward, as BLA will then resume focus on high-margin whole life, credit life and longer term endowment products.

ROI estimated at about 5percent for the quarter

We expect a 4Q13 ROI of 4.9%, down slightly from 5.1% in 3Q13, due mainly to a sharp drop in the Thai stock market and lower dividend income during the quarter. We estimate 4Q13 investment income of Bt1,9bn, up 30% YoY but flat QoQ. We assume that investment gains for the quarter will post a dive of 59% QoQ and 53% YoY to Bt44m. For FY13, BLA looks set to achieve ROI of 5.0% down slightly from 5.1% in Fy12.

Solid capital base; no cash call concerns

The current duration gap (mismatch period) between investment portfolio maturation (nine years) and the mean liability time-frame (12.3 years) is currently 3.3 years. BLA will trim that gap to less than three years in FY14 in order to mitigate re-investment rate risk. That should make for a CAR of above 266% (we expect more than 300% by YE14), much higher than the Office of the Insurance Commission's minimum requirement of 140%.

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