The author is an analyst for NH Investment & Securities. He can be reached at junsup@nhqv.com -- Ed.
At Hyundai M&F, 2024E P/B sits at only 0.39x, well below that for Samsung F&M (0.76x) and DB Insurance (0.59x). Although its shareholder return momentum is weak, Hyundai M&F offers limited valuation burden and solid DY levels.
Earnings turning around; raise TP
We raise our TP on Hyundai M&F from W40,000 to W47,000, reflecting changes in our base year for BPS forecast and earnings estimates. Our TP is calculated by applying a target P/B of 0.53x to 2024E BPS of W89,148.
Seeing limited room for expanding shareholder return, we maintain our valuation discount at the previous 60%. Depending on future industry trends, however, some of the firm’s treasury share holdings (12.3%) may be canceled.
After somewhat disappointing 2023, earnings to normalize this year
Hyundai M&F had a volatile financial year in 2023. A surge in respiratory patients combined with the application of IFRS17 actuarial assumption guidelines resulted in deterioration of claims and expenses and CSM decline over 1Q23~3Q23, hefty loss-making contract costs in 4Q23, and ultimately 2023 NP of only W805.7bn. Although this figure represents an all-time high for Hyundai M&F, it still falls short of the initially expected result after the IFRS17 conversion.
However, we still anticipate earnings normalization from 2024. We note that y-y base effect stemming from 2023 loss contract costs and claims and expenses alone could boost 2024 pre-tax profit by W300~400bn. We forecast Hyundai M&F’s 2024 NP at W1,040.3bn (+29.1% y-y). Even if its DPR is maintained, 2024 DPS should rise to W2,700 (DY of 7.8%) thanks to profit increase.
4Q23 NP of W19.4bn
Hyundai M&F posted 4Q23 NP of W19.4bn (underwriting loss of W228bn, investment income of W184bn), missing consensus. In particular, costs from loss-making contracts (W480.4bn) due to assumption changes were larger than expected by the market.