JKSB Full Year Highlights_HNB Assurance PLC (HASU)_CY16
HASU reported a significant 228% YoY increase in full year earnings for CY16, driven by a 1) a turnaround in GI business profitability (PAT of Rs. 47mn for CY16 vs. a loss of Rs. 227mn in CY15); and 2) a strong increase in life surplus transfer for the year (+49% YoY to Rs. 461mn). The improved profitability of the GI business stems mainly from a strong improvement in its motor claims ratio (from 88% in CY15 to 69% in CY16), resulting in a 16ppt increase in the overall GI combined ratio to 107%. Above-industry life GWP growth supported a ~1ppt YoY increase in LI market share although HASU’s ranking remained unchanged, while loss of GI market share (and the accompanying drop in market ranking) observed in 9MCY16 was reversed by a strong increase in 4QCY16 miscellaneous GWP, with HNB General Insurance maintaining ~4% market share and its ranking as seventh largest GI insurer in full year CY16.
We project full year earnings of Rs. 770mn for CY17, 19% YoY. While a shift from Net Premium Valuation (NPV) to Gross Premium Valuation (GPV) has resulted in a one-off life surplus of Rs. 2.2bn for HASU - retained in the life fund pending IBSL directions - we have not factored release of this surplus to policy holders/shareholders into our CY17 forecasts given a lack of visibility regarding 1) the timing of the release (which would depend on the IBSL); and 2) the split between policyholders and shareholders. This, therefore represents longer term upside potential to earnings. HASU’s share price has appreciated by 9% since publication of our last report dated November 2016 - in which we recommended the stock as a BUY at Rs. 55.00 - outperforming the ASPI (which declined by 2% over the period) and offering an ~18% shareholder return (including dividend yield). Despite price appreciation, the counter continues to trade at attractive valuations: CY17E P/E of 3.9x and a P/BV of 1.1x (based on NAV as at end Dec 2016), at a discount to our insurance sector coverage universe.
•JKSB is one of 15 founding members of the Colombo Stock Exchange with roots in share trading dating back to 1896, and is a subsidiary of John Keells Holdings PLC (JKH), the largest listed entity on the Colombo Stock Exchange with a market capitalization of US$ 1.3bn.
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•JKSB is a research contributor to Bloomberg on ‘KEEL’
•The JKSB Research Universe covers 72 stocks across 15 sectors, with most Research efforts focused on approximately 45 of the more liquid counters.
•The JKSB Universe constitutes 67% of total market cap and approximately 80% of turnover at the CSE.
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