Profit Momentum Remains Weak
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
We believe that Samsung Life remains more appealing than other life insurers, in light of its solid profit management capabilities and the value of its SEC stake. But, mid/long-term profit momentum appears somewhat weak for now.
Lower TP to W50,000
We downgrade our rating to Hold and lower our TP from W69,000 to W50,000, noting unfavorable interest margins on downtrending interest rates. Our TP was derived by applying a target P/B of 0.27x to 2020E BPS of W188,149.
Profit momentum remains weak
We believe that Samsung Life’s core strengths, such as its solid profit management capabilities, healthy new contract growth (based on strong GA power), and diverse non-interest revenue sources, remain intact. Nevertheless, interest margins have been deteriorating due to the burdensome interest rate environment, a problem that is unlikely to be resolved in the near term. While the adoption of IFRS17 might play as both an opportunity and a risk, its effective date has been defered to 2023.
Still, as the number-one life insurer, Samsung Life will likely sustain stronger valuations versus peers. The highlighting of the value of the company’s SEC stake could also serve as a share price driver.
2Q20 preview: NP of W397.8bn (+28.6% y-y)
We size Samsung Life’s consolidated 2Q20 NP at W397.8bn (+28.6% y-y). Thanks to the recovery of stock market conditions, around W150bn in variable policy reserves were likely reversed. In addition, real estate fund-related investment gains (W90bn) were likely booked. Also positive, risk loss ratio is forecast to have fallen to the low-80%-level, thanks to reduced claims amid Covid-19.