Uptrend in Payout Ratio Expected to Continue

The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.

 

Maintain BUY and raise our target price 5.1% to KRW103,000           

We maintain BUY and revise up our TP by 5.1% to KRW103,000 for Samsung Life. 1Q21 consolidated NP attributable to controlling interests came in at KRW1.09tn, which exceeded our estimate of KRW735.2bn by 48.0% due to the following: 

(1) Special dividend from Samsung Electronics was wholly reflected as profits in 1Q21, contrary to our previous expectations that some of the dividend (KRW250.0bn) would be booked as dividend reserves in 1Q21 and reversed in 2Q21.

(2) There were one-off profits from the disposal of beneficiary certificates (KRW83.0bn) and SRA real estate fund (KRW90.0bn).

Reflecting the 1Q21 stellar earnings, we have revised up 2021E consolidated NP (to control. int.) by 8.1% to KRW1.70tn—a slight revision, considering the bumper 1Q21 results, attributable to: (1) the removal of a reversal of dividend reserve booked in 2Q21, and (2) a cut to contribution from disposal gains in 2H21.   

DPS estimate revised up to reflect solid earnings; Payout ratio to continue uptrend; Relatively safe from RBC ratio concern

Our BUY rating is premised on the following:

(1) DPS of KRW3,800 (including special dividend from SEC) implies a 4.5% dividend yield.

(2) The uptrend in payout ratio should continue, in our view, given that the inheritance issue has been finalized and earnings are likely to stabilize following the introduction of IFRS17. 

(3) In light of potential rise in market interest rates in 2H21, that Samsung Life’s high RBC ratio relative to peers leaves the company relatively less vulnerable to a possible decline in RBC ratio—which take places when market interest rates are on an uptrend—should serve as a key investment point, in our view. 

Our revised TP is based on 12m fwd BVPS of KRW221,372 and target P/B multiple of 0.5x (sustainable ROE: 3.5%→3.7%, COE: 5.9%→5.5%, g: 2.1%). 

Surge in 1Q21 consolidated NP driven by dividend income, gain on variable guarantee reserves, and greater earnings at affiliates and consolidated funds 

1Q21 consolidated NP attributable to controlling interests amounted to KRW1.09tn, marking a 373.2% YoY gain. The company’s 1Q21 results included: (1) KRW802.0bn in special dividend from SEC; (2) KRW36.0bn in gains on variable guarantee reserves (vs. –KRW355.0bn in 1Q20); (3) KRW83.0bn in disposal gains (vs. KRW475.0bn in 1Q20); and (4) KRW345.0bn in gains from equity method/earnings consolidation upon greater earnings at affiliates and consolidated funds (vs. KRW132.0bn in 1Q20). Meanwhile, underwriting profits fell 5.3% YoY to KRW380.2bn. 

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