Result Review: EFU General Insurance Limited (07112008)

EFUG announced its 9MCY08 result depicting a per share earning of Rs3 and after tax profit of Rs344.6 million result remained in line with our expectation. The declining trend of economic activities in the country is a negative factor for the insurance industry, despite the fact the insurance business is sustaining in these adverse conditions.
Economic Depression not to Hamper Core Income
The net premium revenue recorded minor growth of 5%. The claim ratio stood at 71% compared which was 75% in 9MCY07. Comparing with 93% of 2H of CY07, it has been witnessed to be normalised. The net underwriting income posted a tremendous growth of 182%, despite a slight growth in premium revenue this escalation is attributable to the stable claims and slight decline in expenses of 2%.
Investment income not to support
profitability…
The bearish activity at the stock markets resulted in loss of Rs52.96 million in second and third quarter, as the major part of investment approximately 80% is invested in equity market. However gains from the first quarter kept the investment income positive of Rs233.16 million, while a decline of 77 percent was witnessed. The extreme depreciation at the stock exchange has resulted in the erosion of market value of investment to Rs15,903 million (on 30 September 2008) as compared to Rs18,595 million (on 31 December 2007).
Massive equity makes EFUG attractive…
EFUG Target price of Rs243, which equates to a total potential return of 49%. EFUG is trading on 10.7x P.E, 0.91x PBV, with a RoE of 9.7%, on our CY 08 estimates.