Detached from Boom in Stock Market
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
We adhere to our Positive stance towards the non-life insurance industry. While it is true that earnings growth momentum is currently anemic, we see share price corrections as being excessive. We believe that it is time to focus on the industry from a dip-buying perspective.
Maintain existing earnings forecasts; building upon 2020 turnaround, earnings to grow stronger in 2021
We adhere to our Positive stance towards the non-life insurance industry, believing that following business turnarounds last year (2020E combined NP: +42.8 % y-y), the five non-life insurance companies under our coverage will see further NP growth (+13.3% y-y) in 2021. Of note, our overall NP outlook for the five companies is similar to consensus.
Non-life shares remaining far detached from boom in stock market; see dip-buying opportunities
Despite rising NP, non-life insurance shares have remained stalled on: 1) dissipating momentum as the government’s medical insurance-related measures have failed to meet market expectations; 2) concerns that benefits from the Covid-19 will fade; 3) pre-tax profit growth failing to match strong underwriting profit improvement; and 4) investors losing interest in the non-life sector, drawn by the robust securities industry.
That said, we see little room for further share price decline at this point. Assuming that they are not drastic, potential interest rate hikes should be of no harm. Although there are no share price catalysts in play now, we believe non-life plays deserve attention considering their strong relative valuation merit. While all of the non-life insurance plays under our coverage boast attractive valuations, we present Samsung F&M as our top pick, anticipating that it will benefit from its Samsung Electronics (SEC) stake.
Combined 4Q20 NP for 5 coverage firms: W259.9bn (+308% y-y)
We size combined 4Q20 NP for the five non-life insurance players under our coverage at W259.9bn, a level slightly below consensus. We estimate 4Q20 combined ratio at 106.5%, a level that represents notable y-y growth (+5.6%p). However, benefits from the improvement in the combined ratio were likely partially offset by a fall in investment yields.