2H23 Outlook
The author is an analyst for NH Investment & Securities. He can be reached at junsup@nhqv.com -- Ed.
Recently, domestic insurance companies have announced their first IFRS17-based earnings results. However, uncertainties related to accounting principle changes have escalated further. Market participants remain uncertain as to whether they can trust the released earnings figures, given: 1) the appearance of drastic earnings increases compared to those based on IFRS4; 2) the complexity of the new accounting rules; and 3) the fact that the financial authority has been raising the possibility of revisions for some of the assumptions in use.
That said, we point out that IFRS17 is now here to stay. The new principles have already been implemented, and they are revealing the potential value of accumulated insurance liability in concrete figures. In the process, earnings at many insurers have increased, reflecting the hidden value of their future earnings generating power.
We expect IFRS17-related uncertainties to ease gradually once guidelines for medical insurance and other segments are presented. Then, the remaining issues should be: 1) reflection of new accounting rules-based earnings in share prices; and 2) shareholder return expansion (set to be discussed in 2H23). We offer Hyundai M&F as our top pick for 2H23, noting: 1) a low valuation 2023E P/E of 2x) relative to its high earnings visibility; and 2) the high chances of DPS hikes.