Equity Analysis /
Pakistan

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

    Ahmed Raza
    Ahmed Raza

    Investment Analyst

    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