Equity Analysis /
Vietnam

Petrolimex Insurance: Q1 19 – Positive results from customer and product restructuring

    Tam Pham
    Tam Pham

    Fishery, Insurance

    Rong Viet
    16 May 2019
    Published by

    Net profit reached VND43bn (+37% yoy) owing to changes in customer and product structures. Net sales grew by 6.7% yoy while total direct insurance operating expenses as well as selling and management expenses increased by 5.7% yoy and 0.8% yoy, respectively. The loss ratio and combined ratio are estimated at 52.36% and 93.23%, respectively. Meanwhile, adjusted net profit from financial and real estate investments decreased by 16% yoy because PGI realised capital gains from investments in MBB and HPG in Q1 18. Q1 19 PAT was VND40bn, up by 13.3% from Q4 18. We raise our target price slightly to VND 20,100 and reiterate our Buy recommendation.

    FY 19 outlook: Prudent growth to ensure profitability and maintain market share

    We forecast PGI's gross insurance premium to reach VND2,985bn (+6.2% yoy), a suitable growth rate to ensure profitability and maintain its top-5 position in the market. The loss ratio is expected to come in at 50.45%, slightly lower than 50.64% in 2018, despite pressures to increase sales in order to maintain market share. The expense ratio would increase slightly to 44.63%, compared with an average of 43.47% in the last three years, mainly due to the development of its online sales channel. The combined ratio in 2019 is expected to reach 95.2%, higher than 94.61% last year, while net profit from the insurance business is forecast to reduce by 2.6% yoy to VND112bn. Profit from investment to reach VND73bn (+21.7% yoy) mainly due to rising deposit interest rates. Investment yield is expected to reach 6.37%, PAT VND153bn (+8% yoy) and EPS VND1,585 (+8% yoy).

    Valuation and recommendation

    The B+ (Good) credit rating by AM Best will support PGI in customer acquisition and entering the premium insurance markets. We expect the loss ratio will continue to improve. In the short term, aviation insurance is only going to play a promotional role for the company rather than bring in profit. New distribution channels (websites and mobile applications) can help reduce operating costs in the long term, but will incur costs in the early stages. As for its investment business, we expect the investment yield to remain stable around 6.2% per year. PATs of 2019 and 2020 are forecast to reach VND153bn and VND167bn, corresponding to growth rates of 8% and 9.2% yoy, respectively.

    We raise our target price slightly to VND 20,100, with an expected cash dividend of VND1,200/share. We reiterate our Buy recommendation with a total expected return of 24% based on the May 15 closing price of VND17,200/share.