Note summary:
JINS reported a 62% YoY increase in GI (General Insurance) business profit for 2QCY14, on the back of 1) a reduction in net benefits and claims (-8% YoY); 2) control of expenses; and 3) fair value gains of Rs. 31.7mn on its equity investment portfolio, following a healthy stock market performance. Contribution from the life business would be recognised in 4Q, post an actuarial valuation of the life fund which amounted to Rs. 7.1bn as at end June 2014.
While the decline in premium revenues for both the life and general businesses remains a concern, we maintain our full year earnings forecast of Rs. 1.1bn for CY14, which translates to an EPS of Rs. 3.10 (+12% YoY). While the expected turnaround in the life business is unlikely to take effect this year, our channel checks suggest that July was a strong month for the GI business and management expects this uptick to continue during 2HCY14. We have revised our projections for LI GWP growth and GI GWP growth to single digit levels for CY14, but expect a healthy improvement in the company’s expenses ratio for the year given management’s commitment to cut down costs. If the current uptick in the equity market continues, the company should also report fair value gains on its equity portfolio. JINS’s share price has appreciated by 23% since publication of our BUY report dated June 2014, significantly outperforming the ASPI which appreciated by 11% over the period. Nevertheless, the stock still trades at a CY14E P/E multiple of 6.0x, at a 48% discount to the sector and a 54% discount to the market.
John Keells Stock Brokers (Pvt) Ltd.