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PGI - Stable Outlook

1Q2019 – Positive result due to customer and product restructuring

Net profit from the insurance business reached VND 43 billion (+37% YoY) owing to changes in customer and product structure. Net sales from the insurance business grew 6.7% YoY while total direct insurance operating expenses as well as selling and management expenses increased only 5.7% YoY and 0.8% YoY, respectively. The loss ratio and combined ratio are estimated at 52.36% and 93.23%. Adjusted net profit from financial and real estate investments decreased by 16% YoY because PGI realized capital gains from investments in MBB and HPG in Q1/2018. Q1/2019 PAT reached VND 40 billion, up 13.3% compared to Q1/2018.

FY2019 outlook - Prudent growth to ensure profitability and maintain market share

We forecast that PGI's gross insurance premium may reach VND 2,985 billion, +6.2% YoY, a suitable growth rate to ensure profitability and maintain its top 5 position in the market. The loss ratio may come in at 50.45%, slightly lower than 50.64% in 2018 despite pressure to increase sales in order to maintain market share. The expense ratio would increase slightly to 44.63%, compared to the average of 43.47% in the last 3 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 VND 112 billion. Profit from investment to reach VND 73 billion (+21.7% YoY) mainly due to rising deposit interest rates. Investment yield is expected to reach 6.37%, PAT VND 153 billion (+8% YoY) and EPS VND 1,585 (+8% YoY).

Valuation and recommendation

The B+ (Good) credit rating by A.M.Best  will support PGI in customer acquisition and entering premium insurance markets while the loss ratio will continue to improve. In the near future, aviation insurance is going to play a promotional role for the company rather than make a profit. New distribution channels (websites, mobile applications) can help reduce operating costs in the long term but will incur costs in the early stages. As for investment business, we expect the investment yield to remain stable around 6.2% per year. PATs of 2019 and 2020 are forecasted to reach VND 153 billion and VND 167 billion, corresponding to growth rates of 8% and 9.2% YoY, respectively.

We keep our target price at VND 20,100 with an expected cash dividend of VND 1,200/share, we recommend BUY with a total expected return of 24% based on the May 15, 2019 closing price of VND 17,200/share.