EUR 4.56 For Business Accounts Only

JKSB Quarterly Highlights_People's Insurance PLC (PINS)_1QCY17

PINS reported a significant 69% YoY increase in profit for 1QCY17, supported mainly by healthy growth in premium revenue (+12.6% YoY), coupled with sharply higher interest & dividend income (+57% YoY) - stemming from the investment of IPO funds of ~Rs. 750mn in a rising interest rate environment - and lower fair value losses on the company’s equity investment portfolio (which is heavily dominated by banking sector stocks which have seen strong price appreciation). While PINS’s motor claims ratio improved to 71% (from 73% in 1QCY16), supported by a lower frequency of accidents during the quarter, its combined ratio was broadly flat YoY at 92% on the back of an overall 68% claims ratio and a below-industry expense ratio of 23%.

We conservatively project full year earnings of Rs. 795mn for CY17, +21% YoY. Our current earnings projections do not factor in an expected hit of >Rs. 10mn to investment income in the event of proposed tax changes in the form of 1) removal of the notional tax credit of 10% on investments in government securities; 2) an increase in WHT on dividends and investments in government securities from 10% to 14%; and 3) removal of the exemption of tax on interest income from corporate debt, given a lack of visibility on timelines for implementation. At its current price of Rs. 21.40, PINS trades at a P/BV of 1.6x (based on NAV as at end Mar 2017) - in-line with our insurance sector coverage universe which includes composite insurers with large life insurance businesses - and at a CY17E P/E of 5.4x. The company is expected to maintain its generous 50% dividend payout ratio going forward.