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Bangkok Life Assurance (BLATB) Summary

Core Content

Bangkok Life Assurance (BLATB) is a diversified financial services company listed in Thailand, with a current share price of THB86.00 and a target price of THB100.00 (+16%). The company has a market capitalization of THB104.3B and an average daily trading volume of USD2M. Maybank has initiated a BUY rating for BLATB, citing strong growth prospects in the Thai life insurance industry.

Main Points

• Industry Growth: The Thai life insurance market is expected to grow at a double-digit rate due to low penetration, an ageing population, rising wealth, and government tax incentives.
• Premium Growth: BLA is expected to achieve a 14.5% CAGR in net premium income from 2013-2016F, slower than the past five years' 19% CAGR but still aligned with economic growth.
• Investment Portfolio: BLA has a stable ROI of 5.0% and a strong investment portfolio, with a focus on long-term government bonds and corporate debentures (85% in 2013).
• Bancassurance Channel: BLA's bancassurance model through Bangkok Bank (BBL) is a key differentiator, with 63% of total premiums and 79% of first-year premiums in 2013.
• Valuation: Maybank estimates a Street-high target price of THB100 based on THB47 EV and THB53 VNB, implying a 19x 2015F PE and 3.9x P/BV.
• ROE and Earnings: BLA's ROE is expected to remain stable at 22% for 2014-2016F, with earnings growth forecasted at 18% in 2014 and 22% in 2015, driven by premium and investment income growth.
• Market Share: BLA was the fifth-largest life insurance company in 2013 with an 8.8% market share, and is seen as a GARP stock with a three-year PEG below 1x.

Key Information

Financial Highlights

• Net Premium (THBm): FY12 - 34,128, FY13 - 38,795, FY14E - 53,040, FY15E - 51,609, FY16E - 58,277
• Net Profit (THBm): FY12 - 3,724, FY13 - 4,381, FY14E - 5,170, FY15E - 6,284, FY16E - 7,667
• EPS (THB): FY12 - 3.10, FY13 - 3.63, FY14E - 4.27, FY15E - 5.19, FY16E - 6.33
• P/E (x): FY12 - 28.4, FY13 - 24.3, FY14E - 20.6, FY15E - 17.0, FY16E - 13.9
• P/BV (x): FY12 - 5.4, FY13 - 4.8, FY14E - 4.1, FY15E - 3.4, FY16E - 2.9
• EV per share (THB): FY12 - 25.3, FY13 - 26.9, FY14E - 37.7, FY15E - 47.1, FY16E - 52.8
• P/EV: FY12 - 3.5, FY13 - 3.3, FY14E - 2.3, FY15E - 1.9, FY16E - 1.7
• DPS (THB): FY12 - 0.72, FY13 - 0.91, FY14E - 1.00, FY15E - 1.20, FY16E - 1.50
• Dividend Yield (%): FY12 - 0.8, FY13 - 1.0, FY14E - 1.1, FY15E - 1.4, FY16E - 1.7

Growth Drivers

• Low Insurance Penetration: Thailand's life insurance penetration rate is 3.7% of GDP (vs. 11% in Hong Kong and 4.5% in Singapore).
• Ageing Population: The proportion of people aged 60+ is expected to double to 25% by 2030, contributing to higher demand for life insurance.
• Rising Wealth: The middle-income class is expected to grow to 43% of the population by 2018.
• Government Tax Incentives: Up to THB300k of insurance premiums is deductible from taxable income, boosting demand.

Competitive Strengths

• Bancassurance Channel: Strong distribution through BBL with 1,072 branches, offering a scarcity premium.
• Investment Strategy: Stable ROI and low exposure to equities, with a focus on long-term bonds and debentures.
• Operational Efficiency: Operating expenses have grown slower than investment assets, leading to improved ROI minus OPEX spread.

Valuation and Investment Case

• Target Price: THB100 based on THB47 EV and THB53 VNB, with a 19x 2015F PE and 3.9x P/BV.
• Reserve and Benefits to Premiums: Increased to 83% in 1Q14, with a forecast of 93% in 2014.
• Underwriting Margins: Despite negative underwriting margins, investment income growth offsets these losses.

Industry Outlook

• Premium Growth: Expected to grow at 14% YoY in 2014, with a 15% CAGR during 2008-2013.
• Market Share: BLA was the fifth-largest in 2013 with 8.8% market share, and is expected to gain more due to its bancassurance model.
• Cross-Selling Potential: BLA is positioned to benefit from cross-selling to BBL's depositors, with a low current ratio of 2% of total deposits.

Key Assumptions

Conclusion

BLA is well-positioned to benefit from the growth of the Thai life insurance industry, driven by demographic changes, rising wealth, and government incentives. Its bancassurance model through Bangkok Bank provides a competitive edge, and its stable ROI and operational efficiency support long-term value creation. With a target price of THB100 and a 19x 2015F PE, the stock is seen as undervalued relative to its growth potential.