External Variables Unstable
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
Tongyang Life posted sound NP for 1Q20, helped by both sound recurring profit and gains from the disposal of assets. However, steadily falling interest rates and an unfavorable macro environment (significant economic uncertainties) are still burdensome factors.
Lower TP to W3,600 in reflection of unfavorable macro environment (including low interest rates)
Reflecting an ongoing low-interest environment and economic uncertainties, we maintain a Hold rating on Tongyang Life (Tongyang), lowering our TP from W4,200 to W3,600 in reflection of a discount rate adjustments. We calculated our new TP by applying a target P/B of 0.22x to 202E BPS of W16,178.
1Q20 review: Posts sound NP on asset disposal gains
Tongyang registered non-consolidated 1Q20 NP of W63.6bn (+69.9% y-y), beating both our estimate (W22.2bn) and consensus (W34.8bn). We mostly attribute this improvement to one-off gains stemming from the disposal of assets, but its recurring profit (such one-off gains excluded) comes to as sound as around W30bn.
Notable items in the 1Q20 results include: 1) trading gains from foreign stocks and bonds (around W10bn y-y); 2) currency translation gains (over W30bn); 3) provisioning for variable insurance-related guarantee reserves (around W11bn q-q); 4) APE for protection-type policies of W147.5bn (+17.3% y-y) on strong sales of whole life/CI policies; 5) y-y expansion in annuity APE on changes in product portfolios at the Bancasurance channel (W19.2bn → W 63.9bn); and 6) a decline in APE for savings policies (W80.8bn → W9.9bn)
Steady earnings vs unstable external variables
Despite the fact that Tongyang’s 1Q20 results topped consensus, unfavorable external factors continue to weigh upon its share price. In detail: 1) interest rates have fallen to historical-low levels; 2) the environment for the capital market (the channel for raising capital) remains uncertain; and 3) the business environment for new business acquisitions is becoming increasingly difficult.