AICL - Core earnings setting new highs; upgrade to Buy
- We upgrade our investment case for AICL to Buy with a revised Dec’17 TP of PkR91/sh, which offers a total return of 24%. Underwriting income rose 26%YoY in CY16 and we think a similar pace can sustain over the medium-term with push emanating from the motor business (UAE & Pakistan) and domestic corporate expansion cycle.
- Recent changes in UAE motor insurance laws (floor on premiums but higher associated expenses) are likely to be a key growth driver in CY17/18F. This can be complemented by CPEC and domestic corporate activity, where we see the Fire & Property segment’s limited 9% contribution to premiums as an opportunity.
- AICL trades at a CY17F P/B of 1.3x and P/E of 7.2x, implying a discount of 39% to the Index. We see this discount narrowing as AICL grows its underwriting income and thus gradually reduce its reliance on investment income. A further trigger to earnings may arise from the Life subsidiary, expected to start contributing to the bottomline from next year.
Co. is primarily engaged in underwriting fire, marine and motor insurance. Co. is also engaged in other classes of insurance including engineering, bonding and surety, banker's insurance, burglary and theft, kidnap & ransom and medical insurance.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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