Bao Viet Holdings Life insurance business shaken by bancassurance performance

Bao Viet Holdings Life insurance business shaken by bancassurance performance

• We maintain our rating of Reduce for BVH with our target price unchanged at VND68,000, implying potential downside of 5.6% from the current market price.

• Our reiteration is based on 3Q19 and 9M19 net profit results, which are totally in line with our forecast (completing 76.9% of HSC’s forecast and 85.1% of BVH’s full-year target). Therefore, we maintain our previous forecast of 16.9% y/y growth in FY19 net profit to VND1,297bn.

• However, for FY20, we revised down our forecast for net profit slightly by 2.6% from VND1,534bn (+18.1% y/y) to VND1,494bn (+17.7% y/y). Although we adopted lower expectations for almost all categories, such as life and non-life premium growth, claims and provisioning expenses and administrative costs, the final impact on FY20 net profit is quite insignificant.

• Bancassurance has been accelerated to be an alternative distribution channel for life insurance products, which contributed 30% of new premium and approximately 18% of total premiums. Therefore, given the lack of a strong bancassurance network, BVH is losing market share.

• The expectation for a big recovery in mathematical reserve expenses from 2019 onwards, thanks to increasing valuation rates, has dampened given the stable, low government bonds yields.

• Finally, investment yields are becoming normalized due to a lack of huge one-off income as seen in FY18. We forecast that the low rate environment will continue for the next two years.

HSC