Bupa posts weak Q3 as it sheds market share: Shuaa Cap

Bupa Arabia for Cooperative Insurance posted weak results for Q3 2017 as it continued to lose market share to its main competitor, Tawuniya, Shuaa Capital said in an earnings review on Thursday.

However, the negative impact was mitigated by a 65 percent year-on-year (YoY) rise in Q3 investment income, it added.

Gross written premiums (GWPs) slipped by 2 percent YoY in the third quarter. Pre-tax income also slid 17 percent, when compared to the same period last year.

“Whilst medical segment GWPs have held up well for the first half of this year (+1 percent YoY in H1 2017A) we continue to expect this to end in a contraction by year end as recently introduced expat levies, tough conditions for labor-intensive sectors and a likely technical recession for the country reduce the number of expats overall (expats in the private sector is the main segment with high enforcement rates),” the brokerage firm added.

Unlike Tawuniya, which recorded a 22 percent jump YoY in its nine-month GWPs from its medical segment, Bupa’s GWPs slipped 3 percent YoY for the same period.

Tawuniya’s figures were driven by a large contract win from its previous client Saudia Airlines. However higher loss ratios were incurred at 85.8 percent, compared to management guidance of 81.5 percent.

Tawuniya also is likely to widen market share more aggressively, backed by strong solvency margin, Shuaa Capital added.

Meanwhile, superior management of receivables (lowest day sales outstanding) allow Bupa to enjoy a larger quantum of investment income.

“Bupa is a pure-play medical insurer and will be impacted by the institutional B2B nature of the segment. It is best placed to capitalize on any changes to the provision of health care including management of healthcare facilities (a key part of Bupa Global’s vision, which this year increased its stake in the Saudi insurer through a block sale by Nazer Group),” the brokerage firm added.

Shuaa Capital maintained its “hold” rating on the stock, with a target price of SAR 127.3, thanks to strength points and excellent management.