BVH – A shelter amid market volatility – Initation

• We view BVH as a shelter amid times of uncertainty, given its premier market position, strong earnings visibility and stability.
• We expect BVH will deliver robust earnings growth of 66%/27% in FY23-24, driven by better investment yields and lower life reserve burden.
• Current valuation is undemanding; initiate ADD with TP of VND76,000

Initiate coverage with ADD rating; potential upside of 45%

We initiate BVH with an ADD rating and 1-year TP of VND76,000 based on target FY23F P/B multiple of 2.5x. As the largest insurance company in both life and non-life markets, the company is well-positioned to benefit from rising interest rates and to capture the significant growth potential of Vietnam’s insurance industry. We expect BVH will deliver strong earnings growth of more than 40% on average over the next two years and improve ROE towards the low-to-mid double-digit level, which should help re-rate the stock.

One of the biggest beneficiaries in a rising interest rate environment

BVH is the only listed insurer on the stock exchange with both life and non-life operations. As such, in a rising interest rate environment, the company will not only benefit from higher investment yields/income like purely non-life carriers but it will also benefit from lower math reserve expense on the life insurance side. Specifically, rising government bond yields will drive higher technical discount rate, and in turn, lower mathematical reserve. We note primary 10-year and 15-year government bond yields are up around 180-190 bps ytd.

Multiple macro tailwinds to secure insurance long-term growth

Vietnam’s relatively low insurance penetration across both life and non-life markets suggests significant growth potential ahead. We see multiple economic and demographic trends that should support strong demand for insurance, which include rising middle class, aging population, better education, further development of the financial markets, and foreign investments.

Attractive valuation

BVH is trading at current P/B of 1.8x, which is well below its 3-year average of 2.1x. We believe the recent pullback of the stock price has provided an entry point for investors to accumulate a market leading insurer with high barriers to entry and strong earnings visibility. Upside catalysts include (i) better-than-expected non-life combined ratio and (ii) possibility of capital raising through a private placement. Risks to our call include (i) failure to roll out unit-linked offering and (ii) catastrophe losses at the non-life segment.

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