Robust Protection-type Policy Sales Growth
The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.
Maintain BUY, target price of KRW103,000
We maintain BUY and our TP of KRW103,000 on Samsung Life. We forecast 2Q21 consolidated NP (attributable to controlling interests) at KRW288.9bn, which is 9.8% below the market consensus.
Robust protection-type policy sales growth; relatively mild valuation burden; light RBC pressure
Our rating remains unchanged based on the following:
(1) Efforts to promote new GI (general illness) and other protection-type policy sales should bolster protection-type insurance sales amid a 10-20% decline in new protection-type insurance APE among life insurers due to sluggish whole life and critical illness insurances.
(2) Samsung Life has the lightest valuation burden among life insurers after stock corrections due to decelerating growth in long-term bond rates.
(3) RBC pressure is light.
Of note, our TP was derived by applying a target multiple of 0.5x (3.7% sustainable ROE, 5.5% cost of equity, 2.2% terminal growth rate) to 12m fwd BVPS of KRW221,551.
2Q21 preview: consolidated NP at KRW288.9bn (-35.6% YoY); decline attributable to base effect
We forecast 2Q21E consolidated NP (attributable to controlling interests) at KRW288.9bn (-35.6% YoY). Earnings should erode given high base effects for underwriting profit, variable guarantee reserves and earnings contributions from subsidiaries/beneficiary certificates. Specifically, we estimate underwriting profit at KRW349.1bn (-22.2% YoY). During the early stages of the pandemic, risk loss ratios plunged because of a decline in diagnosis and surgery claims. However, we expect the risk loss ratio to rebound 7.5pp YoY and mortality gains to decline 33.3%. Furthermore, loading gains should decline 11.1% YoY on higher new contract costs amid flat expected expenses. As for variable guarantee reserves, we expect an KRW80.0bn reversal, down significantly from a KRW144.6bn reversal in 2Q20. Meanwhile, consolidated and equity-method subsidiaries should continue to perform well, but the contribution from consolidated beneficiary certificates should deteriorate YoY. Given the significant dividend income and asset disposal gains in 1Q21, a decline in asset disposal gains appears inevitable. Considering these factors, we believe 2Q21 results will be better than expected.