Capable of Maintaining Stable Loss Ratios
The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.
Maintain BUY; Lower TP by 4.8% to KRW300,000
We maintain BUY on Samsung Fire & Marine (Samsung F&M), but lower our TP by 4.8% to KRW300,000. We reiterate BUY, as: (1) unlike competitors, Samsung F&M still has upside with regard to improvements in property & casualty loss ratio; and (2) given the high proportion of personal accident policies, the insurer is capable of maintaining stable loss ratios, which should become increasingly important under IFRS 17. We project 4Q21E standalone NP at KRW61.6bn, 65.4% below consensus and 52.9% below our previous forecast. Accordingly, we have lowered 2021E standalone NP by 3.7% to KRW1.08tn. Meanwhile, we have raised 2022E standalone NP by 0.5% to KRW995.8bn. Our TP of KRW300,000 has been derived by applying a 0.81x target multiple (sustainable ROE: 5.9%→6.0%, COE: 6.7%→6.9%, TGR: 2.3%) to 12m fwd BVPS of KRW365,934.
4Q21E standalone NP of KRW61.6bn, well below consensus and our previous forecast
We expect 4Q21E standalone NP to fall 55.4% YoY to KRW61.6bn, well below consensus and our previous forecast, for the following reasons:
(1) Group-wide special incentive payments and contributions to a corporate welfare fund should push up operating expenses, significantly higher than previously anticipated. Expense ratio should rise 2.2pp YoY to 22.4%.
(2) The increase in long-term loss ratio should be much steeper than previously expected, rising 3.4pp YoY to 94.7%, since premium hikes in 2019 and 2020 by Samsung F&M had been relatively small compared to competitors given its lower loss ratio. The company’s long-term loss ratio should stabilize from 2022 onwards, however, as premium hikes have become comparable to those of peers since 2021.
Meanwhile, auto loss ratio should decline 0.3pp YoY to 87.6% with property & casualty loss ratio also falling 9.0pp YoY. Overall, Samsung F&M’s 4Q21E results should be unfavorable in light of non-recurring expenses, but should fall within typical ranges in terms of earnings indicators.