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Bangkok Life Assurance

Price bottoms out creates good entry point

Bangkok Life Assurance Plc (BLA)

- 4Q13 profit to contract. First year premium shrinks harshly

BLA’s 4Q13 net profit is projected at B995m, contracting 9.6%qoq (but leaping

212.3%yoy). Despite high season for life insurance, 4Q13 total premium is expected to

drop by 2.2%qoq as first year premium would fall far below the target. Thus, FY2013

total premium is projected to shrink to 13.2%yoy (below BLA’s target of 17%yoy).

4Q13 first year premium is forecast to drop by 17.7%qoq, as BLA has have no new

short-term production (endowment) to boost sales while BBL has strongly shift focus on

mobilizing deposit. Moreover, as renewal year premium is projected to rise by only

1.8%qoq, 4Q13 total premium is likely to fall. 4Q13 underwriting expense is projected

to decrease by 1.1%qoq along with total premium. However, the composition of total

expense would change significantly. Over B2bn expense from benefit paid would be

booked in 4Q13, whereas premium reserve expense would drop greatly. Thus, 4Q13

premium reserve expense to total premium ratio is projected at only 48.8% (but

FY2013 premium reserve expense to total premium ratio is expected at 65.2%). 4Q13

operating expense is projected to increase due to seasonal effect. Also, ROI of

investment portfolio is expected to fall to 5.05% as the capital market would not be

preferable and dividend payment season has ended already. Overall, FY2013 net profit

is projected to grow by 36.2%yoy but still 10% lower than our expectation.

- Aims to boost first year premium by 30% in 2014

We are in reviewing of BLA’s FY2014-2015 earnings forecast. Though earnings forecast

might be revised down, there might be some improvement consistence to BLA goal to

boost first year premium by over 30%yoy, focusing on bancassurance to encourage

business synergy with BBL. Moreover, credit life is likely to grow rapidly in next three

years. BLA also aims long-term ROI above 5%, along with growing portfolio each year.

- Price undergone correction. Good to accumulate

We reiterate "BUY". BLA’s share price has substantially undergone correction along with

the market, in contrast with business long-term growth. FY2014 fair value is B82.61

(FY2013 embedded value at B29.63 and FY2013 B52.97), which is BLA's good entry

point to accumulate with lower risk.

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