Max Life reported 18.5% NBAP margin and 16% operating RoEV in H1FY17, supported by 18% APE growth, which was broadly on expected lines. We build in marginal improvement in profitability in H2FY17, in line with seasonal trends. Currency demonetisation may put some pressure on near-term performance, although will augur well over the longer term. Retain ADD with target price of R595 (unchanged).
Max Life reported 18% y-o-y growth in APE during H1FY17, supported by both group and individual businesses. Share of Axis Bank was stable at 55% of total; growth in bancassurance to 65% of total from 62% in H1FY16 was driven by other banks (Yes and LVB). We model 12% APE growth for FY2017E, i.e. 8% in H2FY16 — this may have some upside risk but remains challenging to predict at this stage.
Max Life’s (pre-overrun) NBAP margin declined to 19.2% in H1FY17 from 20.2% in H1FY16. Share of protection was at 4% in H1FY16 and H1FY17, higher than about 2.5% for H2FY16. Share of ULIPs has gone up to 33% in H1FY17 from 24% in H1FY16. ULIPs typically have high overruns. Yet, Max Life’s expenses overruns declined to R0.1 billion in H1FY17 from R0.3 billion in H1FY16. Thus, despite lower pre-overrun NBAP margin, post-overrun NBAP margin was higher: 18.5% in H1FY17 from 17.1% in H1FY16.c