Beating estimates from higher investment income, 2Q24 results reflected continued strong earnings recovery with good premium growth, fairly stable combined ratio and rising ROI. We expect earnings to grow strongly in 2024F, backed by good premium growth, easing combined ratio and higher ROI. We thus maintain our Outperform rating with a cut in TP to Bt0.8 from Bt1.05. 2Q24: Beat expectations on investment income. THRE reported 2Q24 net profit of Bt85mn (+40% YoY, +61% QoQ), 13% above our estimate, undergirded by investment income. Highlights are summarized below. 1. Net written premiums rose 13% YoY and 12% QoQ in 2Q24 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. 2. Combined ratio rose a slight 24 bps QoQ and 13 bps YoY to 96.6% in 2Q24. Loss ratio shot up 177 bps YoY and 289 bps QoQ to 49.21% in 2Q24. Commission ratio eased 160 bps YoY and 192 bps QoQ to 39.83%. We raise our 2024F combined ratio by 20 bps to 96.5% to be in line with 1H24 figure, expecting this to be stable HoH in 2H24. 3. Net service income fell 11% YoY and 27% QoQ as the company discontinued services to debt-troubled clients to minimize credit risk and doubtful debts, with related cost of service being trimmed in the next quarters. There were also one-time expenses for new investment projects for the newly set-up BlueVenture HCM Company Ltd, which is expected to start generating revenue in 3Q24. 4. ROI rose 220 bps YoY (due to an adjustment in the investment portfolio by raising deposits and bonds which resulted in higher interest income) and 304 bps QoQ (due to a seasonal rise in dividend income) to 4.93% in 2Q24.
2H24F earnings outlook. We raise our combined ratio assumption, which trims our 2024F by 2%. We now expect strong earnings growth of 26% in 2024, backed by an expected 14% earned premiums growth, a 74 bps fall in combined ratio to 96.5% from an adjustment of commission terms to a sliding scale scheme and a 30 bps rise in ROI as we expect no repetition of the investment loss. 1H24 earnings accounted for 52% of our full-year forecast. We expect 2H24 earnings to decrease HoH (lower dividend income) but rise YoY.
Maintain Outperform but cut TP. We maintain our Outperform with a cut in TP to Bt0.8 (based on 0.8 x PBV or 11x PE for 2025) from Bt1.05 as we de-rate to reflect lower L-T ROE. We expect THRE to continue growing earnings in 2024, 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.
|