Earnings Review - Q4 FY 14

65, Braybrooke Place, Colombo 2, Sri Lanka

research@bartleetreligare.com, +94 11 5220200

16 April 2015

BRS Research

Janashakthi Insurance Company PLC (JINS: LKR 21.40)

Head of Research- Nikita Tissera

Senior Research Analyst- Rakshila Perera

Interest rates erode margins and upside : SELL

JINS recorded a bottom line of LKR 483mn for Q4 FY 14 down 20.5% YoY resulting in an EPS
of LKR 1.33. The overall decline in other revenue component to LKR 534mn (Q4 FY 13- LKR
1.02bn) contributed to the lower EPS. However, in Q4 FY 13 JINS other revenue segment
included significant capital gains amounting to LKR ~613mn. For the year ended December
2014, JINS recorded a net profit of LKR 1.06bn resulting in an EPS of LKR 2.92 (+5.6% YoY)
above our forecast of LKR 2.44. Overall GWP for the quarter was recorded at LKR 2.59bn witnessing a 11.2% YoY growth. GWP for FY 2014 witnessed a 2.9% YoY growth to LKR 8.98bn
driven by non-motor insurance of the GI segment (+14.5% YoY). Our TP stands at LKR 19.50
weighed down by the increase in risk free rate. We maintain SELL.
Year Ending 31 December

2010

2011

2012

2013

2014

2015E

2016E

Gross written premium (LKR mn)

6,158

7,128

7,985

8,727

8,984

9,561

10,242

Gross written premium- Life (LKR mn)

1,685

1,872

2,025

2,194

2,170

2,273

2,438

Gross written premium- General (LKR mn)

4,472

5,256

5,960

6,533

6,813

7,288

7,803

Total revenue

6,790

7,099

8,267

9,948

9,789

10,775

11,617

2.12

1.36

2.11

2.77

2.92

3.33

3.71

EPS (LKR)
ROE %

28.5%

16.6%

23.7%

22.2%

20.4%

20.0%

19.2%

NAVS (LKR)

7.44

8.20

9.30

12.48

14.34

16.67

19.33

DPS (LKR)

1.00

1.00

1.00

1.00

1.00

1.00

1.00

Dividend yield (%)

6.3%

6.7%

9.5%

7.9%

4.7%

4.7%

4.7%

Combined claims ratio (%)

56.4%

50.1%

50.6%

55.1%

55.2%

54.1%

54.3%

Debt to Equity (%)

17.2%

3.3%

11.6%

7.4%

11.7%

25.6%

8.3%

P/E (x)

7.6 x

11.1 x

5.0 x

4.6 x

7.4 x

6.4 x

5.7 x

P/BV (x)

2.1 x

1.8 x

1.1 x

1.0 x

1.5 x

1.3 x

1.1 x

Source: Company data and BRS Equity Research

Trading Snapshot
Market cap (LKR mn)
Market cap (USD mn)

57.7

Outstanding shares - voting (mn)

363.0

Public Holding (%) - Dec '14

28.7%

52-week High/Low (LKR)

25.4/13

YTD ASPI return (%)

-4.4%

YTD Stock return (%)

-7.8%

Beta

0.9

Valuation Summary
Justified PER

Justified PBV

Dividend Discount

Residual Income

LKR

GWP of LKR 2.59bn (+2.9% YoY) in Q4 FY 14

JINS general insurance (GI) and life insurance (LI) segments contributed ~76% and 24% to
group GWP during the quarter maintaining the overall split. LI segment posted a GWP of LKR
634mn (+5.9% YoY). First year premium declined by 4.5% YoY to ~LKR 230mn while renewal
premiums grew a substantial 12.8% YoY to LKR 405mn during the quarter. GI segment posted a
GWP of LKR 1.96bn with the motor segment recording LKR 1.28bn (+7.9% YoY). Fire insurance
saw the highest growth of 50.6% YoY to LKR 271mn in Q4 FY 14.
For FY 2014 LI segment posted a GWP of LKR 2.17bn (-1.1% YoY) and the GI segment recorded
a 4.3% YoY growth to LKR 6.81bn. This has been the lowest growth JINS has witnessed for the
GI segment during the past six years, mainly due to the flat growth witnessed by the motor
insurance segment (+0.4% YoY). The decline in the leasing market and new vehicle registrations
during the first half of the year contributed to the slow down in the motor segment.

7,768.2

5.00

10.00

15.00

20.00

25.00

30.00

JINS Price Vs ASPI Movement

ASPI

LKR

8,000

ASPI

25

JINS

7,000

20

6,000
15
5,000
10

4,000

3,000

Aug-12

Net benefits & claims paid at LKR 1.12bn (-3.8% YoY)

Net benefits & claims paid in the LI segment declined 37% YoY to LKR 181mn while the net
benefits & claims in the GI segment increased 7% YoY to LKR 932mn during the quarter. Net
claims ratio for the quarter stood at ~55% (Q3 FY 13- 60%). For FY 2014 net claims paid
amounted to LKR 4.21bn (+2% YoY). JINS total asset base grew 11.8% YoY to LKR 20.87bn as at
Q4 FY 14. In addition, the segregation of life and general insurance businesses will increase the
number of players in the industry to ~30 from the current 21. We believe this would lead to
stronger competition within the industry going forward.

Dec-12 Apr-13

Aug-13

Dec-13

Apr-14

Aug-14

Dec-14

Apr-15

EPS
LKR
4.00
3.50
3.00
2.50
2.00

Valuation - Combined target price LKR 19.50

Our four way combined TP represents a 9.1% downside to CMP (see page 03). The increase in
risk free rate to 8.79% (previous- 7.35%) has weighed down our TP for JINS. However, based on
FY 2015E EPS of LKR 3.25 JINS trades at a forward PER 6.4x. Sector PER is 11.5x as at 15.04.2015
For analyst certification and other important disclosures, please refer to the Disclosure and
Disclaimer section at the end of this report.

1.50
1.00
0.50
2010

2011

2012

2013

2014

Page 1

2015E

2016E

Company Information Note

65, Braybrooke Place, Colombo 2, Sri Lanka
research@bartleetreligare.com, +94 11 5220200

16 April 2015

Janashakthi Insurance Company PLC (JINS)

Year Ending 31 December

2010

2011

2012

2013

2014

2015E

2016E

Summary Information
BRS EPS (LKR)

Company profile

BRS EPS growth (%)

JINS is a composite insurer operating in both

life and general insurance segments. Since,
its inception as a single operation life insurance company JINS is now the third largest
non life insurer and seventh largest life insurer.

P/E (x)
Sector P/E (x)
Reported EPS LKR as per annual report

2.12

1.36

2.11

2.77

2.92

3.33

3.71

17.0%

-36.0%

55.4%

31.4%

5.6%

13.8%

11.5%
5.8 x

7.6 x

11.1 x

5.0 x

4.6 x

7.4 x

6.4 x

19.4 x

13.2 x

10.7 x

8.5 x

13.5x

na

na

2.12

1.36

2.20

2.77

2.92

na

na

NAV per share (LKR)

7.44

8.20

9.30

12.48

14.34

16.67

19.33

P/BV (x)

2.1 x

1.8 x

1.1 x

1.0 x

1.5 x

1.3 x

1.1 x

Sector P/BV (x)

2.9 x

2.1 x

1.7x

1.4 x

1.7x

na

na

DPS LKR

1.00

1.00

1.00

1.00

1.00

1.00

1.00

Dividend yield (%)

Mkt price
Weighted average shares (mn)
Average mkt cap (LKR'mn)

6.3%

6.7%

9.5%

7.9%

4.7%

4.7%

4.7%

16.00

15.00

10.50

12.70

21.50

21.40

21.40

363

363

363

363

363

363

364

5,808

5,445

3,812

4,610

7,805

7,768

7,790

10,242

Income statement (LKR'mn)

Total GWP FY 2014

Life- GWP
LKR 2.2bn

Gross written premium (GWP)

6,158

7,128

7,985

8,727

8,984

9,561

GWP Life

1,685

1,872

2,025

2,194

2,170

2,273

2,438

GWP General

4,472

5,256

5,960

6,533

6,813

7,288

7,803

GWP General- Motor

3,397

3,838

4,388

4,723

4,741

4,978

5,227

(583)

(724)

(825)

(1,013)

(1,181)

(1,099)

(1,178)

Premium ceded to reinsurers

Non-life
GWP

2,443

2,155

2,505

2,778

9,948

9,789

10,775

11,617

Total GWP

Benefits and claims

(4,573)

(5,064)

(5,625)

(6,880)

(6,522)

(7,195)

(7,709)

LKR 9.0bn

Underwriting results

1,455

1,918

2,131

1,980

1,956

2,439

2,594

Other expenses

(1,406)

(1,502)

(1,779)

(1,973)

(2,168)

(2,253)

(2,424)
1,484

811

534

863

1,095

1,099

1,327

(41)

(39)

(63)

(89)

(38)

(119)

(134)

Profit after tax (with non recurring)

770

494

800

1,006

1,061

1,208

1,350

1,005

1,061

1,208

1,350

1.00

1,006

1,061

1,208

1,350

Recurring PAT

769

492

765

Minorities

Profit attributable to equity holders

770

494

800

Cash in hand and bank

1,023

513

421

268

767

631

340

Financial assets

6,721

8,288

10,360

12,746

14,547

16,465

17,637

Investment property

1,243

1,078

1,077

235

131

131

131

318

305

380

1,489

1,510

1,531

1,559
23,824

GWP- Life

LKR 9.0bn

GWP- General

LKR 6.5bn

GWP- Total

LKR 8.7bn

Property plant & equipment

LKR 6.0bn

2012

LKR 8.0bn
LKR 5.3bn

2011

LKR 7.1bn
LKR 4.5bn

Total assets

11,866

13,499

15,844

18,658

20,869

22,728

Total equity

2,702

2,977

3,376

4,528

5,207

6,051

7,038

Revenue reserves

1,206

1,481

1,880

2,532

3,211

4,055

5,042

Interest bearing borrowings

LKR 6.2bn

General GWP breakdown (FY 2010-16E)

LKR'mn

Profit before tax

Tax expense

Statement of financial position (LKR'mn)

LKR 9.6bn
LKR 6.8bn

2010

8,839

1,428

2014

LKR 1.7bn

9,064

8,270

8,267

2015E

LKR 1.9bn

8,461

7,634

1,023

LKR 10.2bn

LKR 2.0bn

7,803

7,505

7,099

LKR 7.3bn

2013

7,714

6,839

1,336

LKR 7.8bn

LKR 2.2bn

7,161

6,076

6,790

2016E

LKR 2.2bn

6,405

5,454

Other revenue

Gross Written Premium (FY 2010-16E)

LKR 2.2bn

5,574

Total revenue

6.8bn

LKR 2.4bn

Net written premium

Net earned premium

465

99

393

336

609

1,548

586

Insurance liabliity - life

3,846

4,695

5,633

6,518

7,331

7,362

7,886

Insurance liability - non life

3,464

4,068

4,623

5,275

5,337

5,603

6,002

11.6%

Profitability ratios

8,020

Return on revenues

11.3%

7.0%

9.7%

10.1%

10.8%

11.2%

7,020

Return on assets

6.5%

3.7%

5.0%

5.4%

5.1%

5.3%

5.7%

Return on equity

28.5%

16.6%

23.7%

22.2%

20.4%

20.0%

19.2%

6,020

Growth rates
Other

5,020

Marine
4,020

Motor

3,020

Fire

Growth in GWP %

7.9%

15.8%

12.0%

9.3%

2.9%

6.4%

7.1%

Growth in NWP %

-1.6%

24.1%

13.9%

22.9%

16.5%

-6.9%

7.1%

Growth in Life GWP %

17.7%

11.1%

8.2%

8.3%

-1.1%

4.7%

7.3%

4.7%

17.5%

13.4%

9.6%

4.3%

7.0%

7.1%

11.0%

13.0%

14.3%

7.6%

0.4%

5.0%

5.0%

Growth in General GWP %

2,020

Growth in General - Motor GWP %

1,020

Growth in total revenue %

13.4%

4.5%

16.4%

20.3%

-1.6%

10.1%

7.8%

Composite claims ratio %

56.4%

50.1%

50.6%

55.1%

55.2%

54.1%

54.3%

20
2010

2011

2012

2013

2014

2015E

2016E

Source: JINS Annual Reports and BRS Equity Research

Persistency rate - Life %

69.4%

64.9%

69.7%

67.8%

66.5%

68.0%

68.0%

Lapse ratio - Life %

30.6%

35.1%

30.3%

32.2%

33.5%

32.0%

32.0%

Debt to Equity (%)

17.2%

3.3%

11.6%

7.4%

11.7%

25.6%

8.3%

NP margin %

11.3%

7.0%

9.7%

10.1%

10.8%

11.2%

11.6%

Page 2

BRS Equity Research

Q4 FY 14 Performance
Q4 FY 14

Q4 FY 13

Q3 FY 14

Total GWP

2,595

2,334

2,160.01

YoY growth (%)

11.2%

4.3%

4.6%

QoQ growth (%)

20.1%

13.1%

6.6%

GWP- Life

634.13

598.93

518.47

GWP- General

1,960.69

1,735.15

1,641.55

Net earned premium (NEP)

2,028.61

1,921.95

1,880.29

YoY growth (%)

5.5%

5.0%

-2.0%

QoQ growth (%)

7.9%

0.2%

1.8%

632.56

582.20

508.52

1,396.05

1,339.75

1,371.76

Underwriting results

506.10

406.12

402.18

YoY growth (%)

24.6%

-22.1%

-18.6%

QoQ growth (%)

25.8%

-17.8%

-22.7%

Insurance liability- Life

7,331.50

6,517.68

7,356.91

Insurance liability- General

5,337.22

5,275.07

4,927.38

54.8%

60.2%

59.0%

1.33

1.67

0.64

YoY growth (%)

-20.5%

69.6%

183.1%

QoQ growth (%)

108.0%

641.2%

21.3%

NAV (LKR)

14.34

12.48

13.04

ROE (%)

36.0%

22.2%

43.0%

NEP - Life
NEP- General

Net claims ratio (%)

EPS (LKR)

Source: Company data and BRS Equity Research

Combined valuation
Janashakthi Insurance PLC - Combined Valuation
(LKR)

Target Price

Weight

Residual Income

21.43

25%

Dividend Discount

12.78

25%

Justified PBV

29.73

25%

Justified PER

13.83

25%

Combined Target Price (LKR)

19.44

CMP as at 15.04.2015

21.40

Upside/(downside) %

-9.1%
Source: BRS Equity Research

www.bartleetreligare.com

Page 3

BRS Equity Research

Sensitivity of Target price to Risk free rate and Terminal growth rate

Risk free rate - 5 year bond

19.44
Terminal growth

7.17%

7.67%

8.17%

8.79%

9.17%

9.67%

10.17%

3%

23.48

22.06

20.80

19.42

18.66

17.74

16.91

4%

23.52

22.09

20.83

19.44

18.68

17.76

16.93

5%

23.56

22.13

20.86

19.47

18.71

17.79

16.95

Peer comparison

(LKR'mn)

JINS

CINS

UAL

CTCE (AIA)

HASU

AAIC

Q4 FY 14

Q4 FY 14

Q4 FY 14

Q4 FY 14

Q4 FY 14

Q4 FY 14

Financial position (LKR'mn)

Total assets
QoQ growth (%)
Total equity
QoQ growth (%)

20,869

96,080

35,604

47,701

9,969

10,323

6%

-4.0%

5.3%

0.4%

5.0%

0.9%

5,207

20,846

6,211

4,887

2,414

2,561

10%

9.6%

17.1%

3.2%

8.0%

-0.6%

15,662

75,234

29,393

42,814

7,555

7,762

5%

-7.2%

3.1%

0.0%

4.1%

1.4%

7,331

60,251

23,054

38,880

5,563

5,224

0%

0.7%

1.4%

1.3%

2.5%

-1.2%

5,337

9,259

3,653

3,934

1,279

1,139

8%

4.7%

1.1%

-11.1%

4.3%

7.8%

GWP- Life

634

3,395

1,671

1,908

600

856

QoQ growth (%)

22%

14.4%

9.9%

3.6%

-1.5%

14.0%

1,961

3,355

1,470

734

614

463

19%

0.8%

31.5%

-5.9%

4.6%

7.6%

(1,112)

(2,764)

(736)

(1,798)

(430)

(437)

0.3%

4.1%

-70.3%

-13.7%

2.5%

-0.8%

482

2,100

790.15

153.76

259.48

222.70

108%

855.9%

768.8%

191.5%

416.6%

15.5%

Total liabilities
QoQ growth (%)
Insurance liability- Life
QoQ growth (%)
Insurance liability- General
QoQ growth (%)

Income statement

GWP- General
QoQ growth (%)
Net claims and benefits
QoQ growth (%)
Net profit
QoQ growth (%)

Share information
MPS-voting (LKR) 15.04.2015

21.40

1,691.70

157.10

282.30

85.00

130.00

EPS (LKR)

1.33

75.66

9.22

5.00

5.19

5.94

NAV (LKR)

14.34

671.02

72.45

162.89

48.28

68.30

Source: Company data and BRS Equity Research

www.bartleetreligare.com

Page 4

BRS Equity Research

Financial Analysis
Income Statement - Janashakthi Insurance PLC

Year Ending 31st December

2010

2011

2012

2013

2014

2015E

2016E

All numbers in LKR'mn

6,158

7,128

7,985

8,727

8,984

9,561

YoY Growth %

Gross written premium

7.9%

15.8%

12.0%

9.3%

2.9%

6.4%

7.1%

Premium ceded to reinsurers

(583)

(724)

(825)

(1,013)

(1,181)

(1,099)

(1,178)

Net written premium

10,242

5,574

6,405

7,161

7,714

7,803

8,461

9,064

YoY Growth %

9.0%

14.9%

11.8%

7.7%

1.2%

8.4%

7.1%

Net change in reserve for unearned premium

(120)

(329)

(322)

(208)

(169)

(191)

Net earned premium

YoY Growth %

(225)

5,454

6,076

6,839

7,505

7,634

8,270

8,839

9.8%

11.4%

12.6%

9.7%

1.7%

8.3%

6.9%

171

179

209

231

248

287

307

1,001

845

1,219

1,567

1,527

2,027

2,266

96

102

96

102

Other revenue
Fee and commission income
Investment income
Realised gains/ (losses)

102

(52)

594

42

Fair value gains/ (losses)

(160)

(81)

10

250

Other operating revenue

164

56

133

41

89

Total other revenue

1,336

1,023

1,428

2,443

2,155

2,505

2,778

YoY Growth %

30.8%

-23.4%

39.6%

71.1%

-11.8%

16.2%

10.9%

Total revenue

6,790

7,099

8,267

9,948

9,789

10,775

11,617

YoY Growth %

13.4%

4.5%

16.4%

20.3%

-1.6%

10.1%

7.8%

Net claims and benefits incurred

(3,078)

(3,044)

(3,463)

(4,133)

(4,215)

(4,477)

(4,795)

YoY Growth %

16.7%

-1.1%

13.8%

19.3%

2.0%

6.2%

7.1%

(574)

(906)

(917)

(1,355)

(844)

(1,364)

(1,463)

Benefits and claims

Increase in life insurance fund

YoY Growth %
Underwriting and net acquistion cost
YoY Growth %

91.4%

57.8%

1.2%

47.7%

-37.7%

61.6%

7.3%

(921)

(1,114)

(1,245)

(1,392)

(1,463)

(1,354)

(1,450)

3.7%

21.0%

11.8%

11.8%

5.1%

-7.5%

7.1%

Total benefits, claims and net acquisition cost

(4,573)

(5,064)

(5,625)

(6,880)

(6,522)

(7,195)

(7,709)

YoY Growth %

19.5%

10.7%

11.1%

22.3%

-5.2%

10.3%

7.1%

Underwriting results

1,455

1,918

2,131

1,980

1,956

2,439

2,594

0.9%

31.9%

11.1%

-7.1%

-1.2%

24.7%

6.3%

YoY Growth %

(17)

(7)

(11)

(33)

(47)

(75)

(96)

YoY Growth %

Finance cost

16.1%

-55.7%

53.8%

191.8%

42.2%

59.3%

27.2%

Other operating and administrative expenses

(1,389)

(1,495)

(1,767)

(1,940)

(2,121)

(2,177)

(2,328)

-1%

8%

18%

10%

9%

3%

7%

(1,406)

(1,502)

(1,779)

(1,973)

(2,168)

(2,253)

(2,424)

YoY Growth %
Total other expenses

Recurring Profit before taxation

YoY Growth %

810

532

828

1,094

1,099

1,327

1,484

8.0%

-34.4%

55.8%

32.2%

0.5%

20.7%

11.8%

Income tax expense

(41)

(39)

(63)

Recurring Net profit after taxation

769

492

765

1,005

1,061

1,208

1,350

17.0%

-36.0%

55.4%

31.4%

5.6%

13.8%

11.8%

YoY Growth %

(89)

(38)

(119)

(134)

Reported EPS (LKR)

2.12

1.36

2.20

2.77

2.92

3.33

3.71

BRS EPS (LKR)

2.12

1.36

2.11

2.77

2.92

3.33

3.71

Source: Company Financial Reports and BRS Equity Research

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BRS Equity Research

Financial Analysis
Statement of financial position- Janashakthi Insurance PLC
As at 31st December

2010

2011

2012

2013

2014

2015E

2016E

Financial assets

6,721

8,288

10,360

12,746

14,547

16,465

17,637

Investment property

1,243

1,078

1,077

235

131

131

131

All numbers in LKR'mn

Assets

Intangible assets

39

33

36

39

Property, plant and equipment

318

305

380

1,489

1,510

1,531

1,559

Policyholder and other loans

244

339

371

366

356

377

405

Investment in subsidiary

Reinsurance receivable

543

400

386

572

308

545

584

Premium receivables

999

1,094

1,420

1,431

1,590

1,434

1,536

Other assets

751

838

704

683

711

711

711

19

74

105

102

77

77

77

Deferred tax assets

Deferred expenses

568

611

726

839

789

806

1,023

513

421

268

767

633

338

11,866

13,499

15,844

18,658

20,869

22,730

23,820

Stated capital

1,496

1,496

1,496

1,496

1,496

1,496

1,496

Revenue reserves

1,206

1,481

1,880

2,532

3,211

4,056

5,042

500

500

500

500

2,702

2,977

3,376

4,528

5,207

6,052

7,038

Insurance liability - life

3,846

4,695

5,633

6,518

7,331

7,362

7,886

Insurance liability - non life

3,464

4,068

4,623

5,275

5,337

5,603

6,002

137

179

210

242

270

298

323
126

Cash in hand and balance at bank

Total assets

Equity and liabilities

Equity

Life insurance fund reserve

Total equity

Liabilities

Retirement benefit obligation

Deferred revenue

94

97

120

126

126

Interest bearing borrowings

465

99

393

336

609

1,553

581

Other liabilities

1,253

1,387

1,512

1,638

1,989

1,740

1,864

Total liabilities

9,165

10,522

12,468

14,130

15,662

16,681

16,782

11,866

13,499

15,844

18,658

20,869

22,730

23,820

Total Equity and liabilities

Source: Company Financial Reports and BRS Equity Research

www.bartleetreligare.com

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BRS Equity Research

Top 20 Shareholders as of 31.12.2014

Name of shareholder

No. of shares

1 Janashakthi Limited

257,707,872

70.99%

2 Dunamis Capital PLC

11,500,000

3.17%

3 Bank of Ceylon-No 2 A/C

11,052,216

3.04%

4 Suktam Holdings (Pvt) Ltd

5,637,338

1.55%

5 Mr. Amarakoon Mudiyanselage Weerasinghe

3,526,699

0.97%

6 Mr.Chitral Hiran Mendis

1,980,000

0.55%

7 Mr.Ambani Dinesh Jamnadas

1,885,704

0.52%

8 L.H.M.S.Lansakara

1,798,704

0.50%

9 Mr.Vijendran Pathmanathan

1,716,000

0.47%

10 Pershing LLC S/A Averbach Grauson & Co.

1,435,000

0.40%

11 Trading Partners (Pvt) Ltd

1,357,023

0.37%

12 Life Insurance Corporation (Lanka) Ltd

1,260,000

0.35%

13 Mr.Haresh Tirathdas

1,155,423

0.32%

14 First Capital Limited

1,135,631

0.31%

15 Mr. Arunasalam Sithampalam

1,080,000

0.30%

16 Mr. Ahamed Aththas Ahamed Rifkee

900,000

0.25%

17 Mrs.Manjula Mathews

850,000

0.23%

18 Mr. Henry Anthony Pieris

750,000

0.21%

19 Mr. Charitha Prasanna De Silva

700,734

0.19%

20 Mr. G.H.A.A. Shabbir

642,340

0.18%

Source: Q4 FY 14 Financial statements

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BRS Equity Research

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