BLA - Attractive valuation, good earnings growth

We see a 15% share price correction since November as an opportunity to buy BLA, with catalysts lying in: 1) easing life policy reserve & benefit payment ratio, 2) an expected rise in first-year premiums in 4Q24, 3) good earnings growth in 4Q24 and 2025, 4) attractive valuation and 5) a potential target for the Vayupak fund and Thai ESG funds.

Attractive valuation, good earnings growth

Easing life policy reserve & benefit payment ratio. BLA expects life policy reserve & benefit payment ratio to fall from 111% in 2023 to 107% in 2024 (107% in 9M24) vs. our conservative forecast of 108%. We forecast the ratio at 109.1% in 4Q24, up QoQ from 107.3% in 3Q24 but down YoY from 112.3% in 4Q23. BLA expects the ratio to continue falling over 2025-2027 to below 100% in 2027 due to release of 5% provisions for adverse deviation (PAD) reserve on matured policies and a shift in product mix to high-margin products. We expect the life policy reserve & benefit payment ratio to fall from 111% in 2023 to 108% in 2024, 104% in 2025 and 100% in 2026.
Rising FYP in 4Q24. BLA expects a rise in first-year premiums (FYP) both YoY and QoQ (high season) due to the introduction of new products in 4Q24. We expect its FYP to rise 4% YoY and 50% QoQ in 4Q24 and end 2024 flattish. It expects renewal premiums to be stable in 2024 and bottom in 2025. We thus forecast growth in total premiums at 3% in 2024 and 0% in 2025.
Expect good earnings growth. We expect 4Q24F earnings to rise 96% YoY (better underwriting margin) and 14% QoQ (larger investment gain) to Bt700mn, with good growth of 32% in 2024F and 29% in 2025F on the release of PAD reserve and better ROI (realized gain).
Attractive valuation after a share price correction. After a 15% share price correction since November, valuation has become attractive at a 48% discount to embedded value, PBV of 0.65x (relative to 8.5% ROE) and PE of 8x (29% EPS growth) for 2025F.
Potential target for the Vayupak fund and Thai ESG funds backed by its SET ESG rating at AA.

Maintain Outperform with unchanged TP. We maintain our Outperform rating with an unchanged TP of Bt27 (based on 0.85x PBV for 2025, derived from 9% L-T ROE) on: 1) expected strong earnings growth over 2023-2026 at 26% CAGR from a larger release of provisions for adverse deviation (PAD) reserve, 2) attractive valuation and 3) a potential target for Vayuphak fund and Thai ESG funds.

Risk considerations. Key risks include: 1) variable customer purchasing power, 2) capital market volatility, 3) bond yield movement, 4) the implementation of new accounting standards, particularly IFRS17 and 5) ESG risk on market conduct.