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Bangkok Life Assurance

Dividend payment may alleviate the shock HOLD

Bangkok Life Assurance Plc (BLA)

BLA's share price has risen aggressively against disappointing

earnings result, so severe correction is very likely. Yet, benefit from

payment of two shares of stock dividend to every five shares held by

existing shareholders to strengthen the capital would help alleviate

the shock.

- 2Q14 earnings substantially worse than expected

BLA announced 2Q14 net profit at only B169m, plummeting 84.6%qoq and

88.4%yoy, substantially worse than expected, marking the first quarterly

low since its listing. The life insurance business faced B1.82bn in loss,

versus B228m in 1Q14. However, gain and dividend from the investment

could negate the loss and also covered the operating expense, while there

was also a reversal of income tax expense of as much as B6m in this

quarter, so BLA was still able to post net profit in this quarter.

- Cut forecast. Recovery foreseen in 2H14

We revise down our FY2014-2015 earnings forecast to reflect the

disappointing earnings in 1H14. The forecast of underwriting expense is

increased, for which cannot be compensated despite a projection for higher

premium income growth, investment gain, and income tax expense. After

the revision, FY2014 net profit is projected to contract 30.5%yoy (while EPS

is projected to plunge 50.5%yoy, for the inclusion of an impact from stock

dividend payment of 485 million shares at a ratio of five existing shares to

two new shares; plus the cash dividend of B0.05/share, the total interim

dividend is B0.45/share, with a payout ratio of around 43%). Subsequently,

an aggressive rebound of 44.0%yoy is foreseen in 2015 due to the low base

in 2014. Since BLA has already achieved its premium income growth target

of the year in 1H14, now it is time to manage the earnings for constant

growth. Moreover, a projected interest rate uptrend in 2015 would reduce

insurance liabilities.

- Hold for interim dividend

We reiterate to hold BLA for its interim dividend. The current share price still

has an 11.10% upside from a new 2014 fair value of B73 (2014 embedded

value of B21 plus VNB of B52), versus B81 previously.

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