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Bangkok Life Assurance

Premium income already achieves target. Time to manage profit HOLD

Bangkok Life Assurance Plc (BLA)

With its remarkable premium income growth in 1Q14, BLA is able to

capture the largest market share in the market, reducing concern

about the growth in the remainder of the year. From now on, it is

time to mange profit by launching more long-term products.


- Good momentum from 2Q14 earnings

We estimate 2Q14 net profit at B1.20bn, marking the year's high with the

growth of 9.7%qoq (despite 17.2%yoy contraction). Although there would

be a loss from the life insurance business in this quarter, it would be offset

by gain and dividend from investment, which would also cover the operating

expense. Moreover, with the corporate income tax rate of around 17% of

the profit before tax, BLA would still be able to show net profit growth in

2Q14. The life insurance business would return to a normal situation in this

quarter. Total premium income growth would not be as strong as 1Q14's

because the company has switched its marketing focus from short-term

products to long-term products in order to reduce the allowance for bad

debts. Debt provision to total premium income is projected to decrease from

83.9% in 1Q14 to 64.0%. However, since benefit payment would be high in

2014, the loss would not decrease significantly.

- Continued profit growth projected in 2H14

We maintain our FY2014 earnings forecast. Even though 1H14 net profit

would make up only 48% of the full-year forecast, continued growth is

foreseen in 2H14. Since BLA has already achieved its premium income

growth target of the year in 1Q14, now it is time to manage the earnings for

constant growth by using its new customer base earned in 1Q14 and

introducing new high margin long-term products for sale through

bancassurance.

- Take profit. Share price overvalued.

We downgrade our recommendation from BUY to HOLD because the share

price has risen rapidly until it already exceeded 2014 fair value of B81

(2014 embedded value projected at B28.03, 2014 VNB at B52.97), implying

a downside (dividend included) of around 5%.


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