THRE - 3Q24: Miss on FX loss; insurance solid

3Q24 results missed expectations due to significant FX loss.
Decent premium growth and stable combined ratio.
Negative ROI from sizable FX loss.
2024 forecast cut by 25% due to adjusted investment income assumptions.
4Q24 earnings expected to recover QoQ (turnaround in ROI) but fall YoY (lower other income).
Strong growth anticipated in 2025 from premium growth, easing combined ratio, and better ROI.
Outperform rating maintained with a target price cut to Bt0.7 from Bt0.8.

3Q24: Miss on FX loss but fine insurance result. THRE reported 3Q24 net profit of Bt12mn (-79% YoY, -86% QoQ), 80% below our estimate due to a one-off FX loss. However, insurance earnings were solid in 3Q24. We summarize the highlights below.

Earned premiums rose 9% YoY and 1% QoQ in 3Q24 on continued growth in both personal lines and commercial lines via expansion in both domestic and international markets, tagging the “hard market” (stronger reinsurance premium rates) in the global reinsurance market.
Combined ratio fell 51 bps YoY and 44 bps QoQ to 96.2% in 3Q24, in line with its full-year target. Loss ratio fell 267 bps YoY and 53 bps QoQ to 46.54 in 3Q24. Commission ratio slipped 6 bps YoY but rose 183 bps QoQ to 41.66%.
Net service income fell 4% YoY but rose 95% QoQ in 3Q24 without the 2Q24 impact from discontinuation of services to debt-troubled clients and one-time expenses for new investment projects for the newly set-up BlueVenture HCM Company, Ltd.
ROI plunged 515 bps YoY and 8.61 bps QoQ to a minus 3.68% in 3Q24 on an unrealized exchange rate loss of Bt63mn arising out of the exchange rate volatility caused by interest rate cuts both domestically and internationally.

Cut 2024F; expect recovery ahead. We cut our 2024F by 25% as we adjust our investment income assumption to factor in the FX loss. 9M24 earnings accounted for 76% of our new full-year forecast. We expect 4Q24 earnings to recover QoQ (from a turnaround in ROI) but fall YoY (lower other income). We now expect earnings to fall 6% in 2024 (lower investment income), followed by strong 37% growth in 2025, backed by an expected 8% earned premiums growth, a 24 bps ease in combined ratio to 96.4% from economies of scale and a strong 130 bps recovery in ROI on no repeat of the investment loss.

Maintain Outperform but cut TP. We maintain our Outperform with a cut in TP to Bt0.7 (based on 0.75 x PBV or 11x PE for 2025) from Bt0.8. We expect THRE to continue to grow earnings in 2025, backed by decent premium growth, improving combined ratio and rising ROI.

Risk considerations. Key risks include: 1) higher claims than expected, 2) slower premium growth than expected, 3) ESG risk on market conduct.