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Bangkok Life Assurance

Ambitious earnings growth target

Bangkok Life Assurance Plc (BLA)

Investment thesis

We expect BLA to deliver strong earnings growth in 1Q14 and FY14, driven by short-term and medium term endowment policies (including single-premium policies) and credit life products. Both product types might require heavier provisioning for the life policy reserve. But greater sale volume should outweigh the effect of provisioning this year. Thus, our profit forecasts remain Bt5.4bn for FY14, up 23.3% YoY, and Bt5.4bn for FY15, up 7.4% YoY. Our BUY rating stands with a YE14 target price of Bt75, pegged to embedded value of Bt34.4/share and total VNB of Bt40.6.

Aggressive FY14 FYP growth target of 47%

After delivering moderate FY13 expansion of 20% YoY for FYPs (driven by longer-term endowments) and 13% YoY for total premiums, BLA has switched focus to medium-term policies (Gain 1st 263 and Gain 1st 245) from whole life products. The strategic shift is aimed at building its 2014 market share after its 2013 total market share dipped to 8.8percent from 8.9% in 2012. The firm has set an ambitious FY14 FYP growth target of 47%. We, conservatively, assume FY14 FYP expansion (including single-premium) of 20% in our model. If BLA were to achieve its FY14 FYP target, there would be scope for upside to our forecast.

FY14 provisions to rise YoY

The greater emphasis on endowment products with moderate margins will mean slightly heavier provisions for the life policy reserve in 1Q14 and FY14. BLA guides for FY14 provisions equal to 66% of total premiums against 65% in FY13 (we expect provisions to equal 66% total premiums in FY14 and FY15). We assume that payouts on life policies will equal 21% of total premiums in FY14 and 20% in FY15. Note that BLA's payouts set a high of 24.7% of total premium in FY13, as a big tranche of life policies reached maturity simultaneously.

Reiterate FY14 ROI target > 5%

Despite the fluctuating SET, BLA is confident that it will achieve FY14 and FY15 ROI of at least 5%. Higher bond yields present an opportunity for it to accumulate more medium- to long-term bonds. The firm recently invested Bt13bn (8% of its total investment portfolio) in foreign currency-denominated bonds that yield 6-7%.

Big CAR supportive of expansion in FY14 and beyond

BLA's current CAR of 247% will support business growth without need for capital-raising for years. Note that the Office of the Insurance Commission's minimum CAR requirement is only 140%. Management aims to mitigate reinvestment risk by extending the duration of its investment portfolio from nine years to closer to the duration of liabilities of twelve years. As such, its CAR could reach 300% at YE14.








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