Equity Analysis /

Adamjee Insurance Co: Q2 CY 19 results: Potential impairment charges and higher taxes lead to losses

    Intermarket Securities
    23 August 2019

    Adamjee Insurance (AICL) reported unconsolidated Q2 CY 19 loss of PKR122mn (LPS: PKR0.35) vs a profit of PKR387mn (EPS: PKR1.11) in Q2 CY 18. The company also announced first interim dividend of PKR1.0/sh along with the Q2 CY 19 results.

    The key reasons for the loss in Q2 CY 19 results include (i) a loss of PKR107mn under investment income vs a historical quarterly rate of cPK450mn, likely due to impairment charges on the equity portfolio while capital losses may also have contributed and (ii) a tax charge of PKR191mn despite a small PBT. Note that AICL booked an impairment charge on equity investments in Q4 CY 18, but during CY 19-td the benchmark KSE-100 Index slid by another 15.4% (it declined by 8.4% during CY 18).

    In Q2 CY 19, revenues grew by 22% yoy amid a stable claim ratio, but the rise in both management and commission expenses led to a 8% yoy reduction in underwriting profits. H1 CY 19 profits are also impacted by lower underwriting profits despite revenue growth, in addition to lower investment income.

    Our Dec’19 TP of PKR43.3/sh offers an ETR of 61%. However, we will revisit our estimates after management guidance to incorporate for higher expenses and a lower investment income.

    Risks: (i) Adverse law and order situation, (ii) regulatory tightening in Pakistan/UAE, (iii) introduction of corporate tax rate in UAE, (iv) delays in ongoing industrial expansion, and (v) sharp slowdown in  auto financing within Pakistan