The author is an analyst for NH Investment & Securities. He can be reached at junsup@nhqv.com -- Ed.
We believe that Samsung Life will boast the most visible and active shareholder return among major insurance plays. However, with such expectations already partially reflected, the firm’s share price volatility is likely to amplify until it confirms a specific shareholder return policy.
Raise TP to reflect most visible rise in shareholder return among insurance plays
We raise our TP for Samsung Life from W99,000 to W116,000. We trim down our discount rate (45% → 20%) for the insurer’s financial domain in recognition of it offering the most advanced shareholder return capacity among insurance plays. But, we keep our discount rate for the stake value of the non-financial business unchanged at 60%. We arrive at an EV of W20.9tn (W116,000/share) by combining: 1) financial business value of W10.4tn and 2) non-financial stake value of W10.5tn.
Besides ongoing climb in DPS, high chance of treasury shares buybacks/cancellations
Among major insurance companies, we view Samsung Life as being the best equipped to pursue a policy of continual and visible shareholder return expansion. The key point of differentiation from other insurance plays is that while maintaining the dividend policy presented (35~45% of DPR + DPS upward trend every year), there is a high possibility that Samsung Life will push up its shareholder return rate via a treasury share buyback/cancellation program.
The grounding for our anticipation toward a more active shareholder return policy (versus other insurance firms) is that: 1) Samsung Life boasts high return capacity, considering CSM growth of around 10% pa, a high K-ICS ratio, and ample profits available for dividend; 2) the company's major shareholders have strong incentive to achieve higher EV as they need to secure funds for paying inheritance taxes; and 3) unlike its affiliate Samsung F&M, the burden on Samsung Life’s treasury share cancellations do not present a large burden on its corporate governance.
Short-term share price volatility to amplify in wake of recent share price jump
After hitting rock bottom point in January, Samsung Life’s share price has since surged around 60%. The firm has recently been showing the highest share price growth among all domestic insurance plays, reflecting the market’s high expectations toward beefier shareholder returns. But, as Samsung Life has yet to specify a shareholder return policy, its share price volatility will likely increase until detailed shareholder return measures are confirmed.