EUR 4.56 For Business Accounts Only

JKSB Quarterly Highlights_Ceylinco Insurance PLC (CINS)_2QCY17

CINS reported a significant 75% YoY increase in earnings for 2QCY17, driven largely by 1) 60% YoY growth in life insurance segment profit, supported by higher investment income and a surplus transfer of Rs. 546mn (+34% YoY) out of the non-participating life fund for the quarter; 2) a turnaround in GI/non-life business profitability (PAT of Rs. 87mn in 2QCY17 vs. a loss of Rs. 636mn in 2QCY16), on the back of higher investment income and increased underwriting profitability (stemming from improved claims and expense ratios); and 3) healthy growth (+18% YoY) in profit contribution from the education segment. The YoY improvement in CINS’s non-life claims ratio was due largely to lower value wise flood related claims on the company’s own account vs. the corresponding quarter last year, while the lower expense ratio YoY came on the back of volume growth. The Group’s non-life insurance operation in the Maldives also registered strong PAT growth (+80% YoY) for the quarter, due mainly to a lower claims ratio. The power generation segment reported a loss of Rs. 13mn for the quarter due to drought conditions. CINS remains the market leader in both the LI (Life Insurance) and GI (General Insurance) markets, with estimated market shares of 22% and 21% respectively.

 We project full year earnings of Rs. 6.4bn for CY17, +37% YoY. Our current earnings projections do not factor in an expected hit 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 (>50% of CINS’s life investment portfolio is invested 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. The voting and non-voting shares currently trade at P/BVs of 1.3x and 0.8x respectively (based on NAV as at end June 2017) - at an unwarranted discount to our insurance coverage universe P/BV - and at CY17E P/Es of 5.8x and 3.8x respectively.