THREL’s 2Q23 results turned around to profit but fell YoY and were below our estimates. Results reflected worse-than-expected combined ratio (significantly down QoQ but up YoY), good premium growth and better ROI. We cut our earnings forecast to fine-tune with 2Q23 results (mainly adjusting combined ratio) but see earnings recovery ahead. We maintain Neutral with a cut in TP to Bt4 from Bt4.5.
2Q23: Miss on combined ratio. THREL reported 2Q23 net profit of Bt32mn, turning around from a loss of Bt15mn in 1Q23 but falling 19% YoY. This was 15% below our estimates due to a worse-than-expected combined ratio on loss ratio.
Highlights:
- Good premium growth: In 2Q23, gross premiums rose 23% YoY and 50% QoQ, which implies a rise in earned premiums in 2H23. Earned premiums rose 12% YoY and 11% QoQ. We raise our 2023F earned premium growth to 10% from 7%.
- Worse-than-expected combined ratio: In 2Q23, combined ratio rose 1.05 ppt YoY but fell 10.28 ppt QoQ to 97.42%, slightly worse than expected. Loss ratio rose 3.16 ppt YoY (higher L-T insurance policy reserve and higher number of medical treatments and rising medical cost inflation) but fell 8.33 ppt QoQ (due to a return to a normalized level after one-time factors in 1Q23) to 69.17%, worse than we expected. THREL claims the implied number of medical treatments returned to normal in the quarter. We raise our 2023F combined ratio by 233 bps to 99.2% to fine-tune with the 1H23 figure of 102.31%. We expect combined ratio to ease in 2H23.
- Rising ROI: +77 bps YoY, +174 bps QoQ to 4.5 % due to higher interest income.
Cut forecast but expect recovery ahead. We cut our 2023F by 35% and 2024F by 16%, largely from an adjustment in combined ratio. We now expect earnings to fall 36% in 2023F but grow a strong 60% in 2024F. We expect a good recovery in 2H23 (both YoY and HoH) and 2024, driven by an ease in combined ratio. With regards to medical inflation, it is currently revisiting the price of health insurance for the next annual renewal to ease the loss ratio and bring combined ratio within the target range of ~95%.
Maintain Neutral with a TP cut. We main our rating at Neutral. However, we cut TP to Bt4 (1.5x PBV or 15x 2024 PE) from Bt4.5 as we de-rate PBV target to factor in a lower L-T ROE as a result of a downward revision in earnings forecast.
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