Mandatory health insurance to accelerate QLM’s growth
QNBFS initiates coverage of QLM with ‘accumulate’ rating Target price of QR5.43 implies 10.8% upside potential
QLM Life Medical Insurance Company (QLM) is expected to benefit the most from the upcoming mandatory health insurance in Qatar, QNB Financial Services (QNBFS) has said in a company report released on Tuesday.
“In April 2021, the Shura Council approved the health insurance draft law that obliges residents and visitors to have health insurance. Once the Amiri decree is released, it could take approximately six months for the initiation of the implementation (most probably by early 2022). With its leading market share, strong solvency and state-of-the-art IT infrastructure, we expect QLM to benefit the most from this mandatory health insurance,” QNBFS said in the report.
“Currently, some large companies and most of the local SMEs do not provide private health insurance to their employees as a result, merely 400k residents are believed to have health insurance coverage. Hence, this law has the potential to expand the number of members in the local health insurance system by four to five times,” the report said.
Moreover, the report said, the new law obliges visitors to have health insurance as well that is likely to create a lucrative new market for QLM, especially in 2022 as Qatar is expected to welcome 1.7 million visitors for World Cup 2022.
“While the law is yet to be finalised, our conservative initial estimations indicate that QLM’s net profit could reach QR129.5 million by 2023, implying a 32.1 percent rise over 2020,” it said.
QLM is Qatar’s leading medical and life insurance company with more than 50 percent market share and strong brand recognition. QLM engages in group credit life group medical insurance and plans to expand into retail life insurance products.
“Qatar comprised 0 percent of QLM’s gross written premiums (GWP) in 2020. The company also reinsures policies written in Oman, Kuwait and the UAE. QLM plans to expand its product range with retail insurance offerings, which should support its growth in the coming years,” the report said.
“QLM’s financial strength and its top-notch profitability should allow the company to maintain its growth while paying generous dividends to its investors. QLM intends to distribute 40-60 percent of its earnings as dividends annually. We initiate coverage for QLM shares with an ‘accumulate’ rating and our one-year target price of 5.43 per share implies 10. percent upside potential,” the report said.
“Group medical insurance generates the bulk of QLM’s GWP. The segment generated 2 percent of QLM’s GWP in the first quarter of 2021, while the rest (1 percent) was realised by the Group Credit Life segment,” the report said.
“QLM enjoys GCC’s most comprehensive network of medical providers, operating in 103 countries along with its state-of-the-art IT system that enhances its customer experience, resulting in more than 90 percent policy renewal rates in Qatar,” the report said.
“Solid capitalisation and high profitability pave the way for top-line growth. QLM’s solvency ratio rose steadily from 165.3 percent in 2017 to 200 percent in 2020, notably above the QCB requirement of 150 percent. Moreover, QLM enjoys one of the highest ROEs among international life insurers with its 2020 ROE at 1 .7 percent notably above the international peer group’s average of 11. percent,” the report said.
“QLM states that its target dividend yields are expected to be above QE average yields. In 2019, QLM declared and paid dividends of QR42 million, which corresponded to a 4 percent payout ratio and a dividend yield of 2.4 percent.
“With its strong profitability and financial power, we believe QLM has the capacity to increase its payout ratio and achieve its dividend policy goals,” the report said.
“QLM’s 2021 and 2022 P E and P BV multiples are above its international peers, which we think is justifiable considering its superior ROE. Besides, we expect the full impact of the upcoming mandatory health insurance to be seen in QLM’s 2023 results hence, we think QLM’s multiples will approach sector averages post-2023,” it said.