The author is an analyist for NH Investment & Securities. He can be reached at junsup@nhqv.com -- Ed.
HGI’s 2023 dividend announcement fell somewhat short of market expectations. However, if sufficient profits available for dividend are secured through system improvements, an expansion of shareholder return should be possible in the future.
2023 DPR of 12.6%; shareholder return rate to rise in the future
We maintain a Buy rating and TP of W6,000 on HGI. The company has decided to pay dividends for the first time in five years (common stock DPS of W200, DPR of 12.6% including preferred stocks). Although the resumption of dividend payout is meaningful, the scale falls somewhat short of market expectations. Based on the current share price, common stock DY stands at 4.1%, slightly higher than the interest rate on banks’ term deposits.
Behind the firm’s somewhat disappointing dividend are: 1) the existence of a ceiling on DPR (approximately 17%) due to the application of K-ICS transitional measures; and 2) limited profits available for dividend payout (W100bn or less). However, as its K-ICS ratio prior to the application of transitional measures reached 180%, the company should remain free of related issues even if the application of transitional measures is lifted.
Therefore, the key in the future is to be whether sufficient profits available for dividend are secured. Recently, financial authorities and industry players are discussing whether to subtract surrender value reserves (W1.8tn at HGI) net of corporate tax, when calculating distributable profits. Assuming this is allowed, the company could secure hundreds of billions of won in distributable profits. If sufficient distributable profits are secured, HGI’s shareholder return rate will likely climb gradually to the levels at major non-life insurers (above 20%).
4Q23 NP of W37bn
HGI recorded 4Q23 NP of W37bn (underwriting income of W34.9bn, investment income of W24.5bn). Despite falling short of consensus, the results appear relatively healthy considering seasonality. In 2024, the company plans to secure more than W700bn in new contract CSM (vs W678.4bn in 2023) by expanding new contracts centered on high-margin comprehensive insurance.