It said on Friday that with investment-linked premiums growing at a double-digit pace, management hopes to sustain new business value growth of more than 20% per annum in the coming years for HLA and this will be positive in bolstering HLA’s overall embedded value.
While HLFG’s insurance units account for less than 10% of group earnings, they account for almost 20% of Maybank Research’s sum-of-parts valuation.
To recap, the research house said the recent meeting with HLA’s management was a fruitful one, the key takeaway being the company’s conscientious push the value chain towards more non-participating/ investment-linked products as well as increased contributions from bancassurance.
Non-par products are said to be six to 10 times more profitable than traditional ordinary life products and investment-linked premiums have been growing at a double-digit pace over the past five years, such that HLA’s non-par/par ratio now stands at 89:11 (FY18) versus just 22:78 in FY13.
Maybank Research said as such, management hopes to sustain new business value growth of more than 20% p.a. in the coming years, which would be positive in bolstering the company’s embedded value.
HLA management’s other focus is on improving the productivity levels of its agents while maintaining overall efficiency levels – HLA is one of the most efficient life insurance companies in the industry with a management expense ratio of just 5.9% in FY18. This effectively provides it with more leeway to invest more in digitalisation.
“HLFG’s current market cap of RM21.6bil is a hefty 20% discount to the market cap of RM27bil for its 64.4% stake in HL Bank (HLB, HOLD, TP: MYR19.45). This compares against a historical discount of about 7%.
“HLFG would undoubtedly provide cheaper exposure to HL Bank while offering the rest of its businesses (life insurance, general insurance and investment banking) for free,” Maybank Research said.
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