The Only Life Insurer in Korea Capable of Managing Capital Erosion
The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.
Maintain BUY; Lower TP by 7.8% to KRW95,000
We maintain BUY on Samsung Life, but lower our TP by 7.8% to KRW95,000. Our BUY recommendation is premised on the following:
(1) Although the upside momentum of long-term bond yields has for the most part dissipated, the negative interest spread should gradually narrow given higher interest rates.
(2) Samsung Life is the only life insurer in Korea capable of managing capital erosion, which is inevitable due to the introduction of IFRS 17, via adjustments to the stake of policyholders.
(3) The P/B valuation discount should fade as the implementation of IFRS 17 should bolster capital confidence.
We estimate 4Q21E consolidated NP at KRW171.2bn, 18.5% below consensus, and have lowered 2021E consolidated NP by 8.8% to KRW1.47tn. Our TP of KRW95,000 has been derived by applying a 0.46x target multiple (sustainable ROE: 3.8%→4.0%, COE: 5.7%→6.0%, TGR: 2.3%) to 12m fwd BVPS of KRW208,637.
4Q21E consolidated NP of KRW171.2bn (-36.8% YoY), 18.5% below consensus
We expect 4Q21E consolidated NP to contract 36.8% YoY to KRW171.2bn due to: (1) a 15.9% YoY decline in insurance profit; and (2) an unfavorable base effect from the write-back of KRW327.0bn in variable guarantee reserves in 4Q20. 4Q21E insurance profit is anticipated to fall 20.0% YoY to KRW276.1bn, as mortality profit should decline 35.6% YoY on an 8.5pp YoY rise in risk loss ratio. Loading profit is projected to grow 21.1% YoY. Group-wide additional incentive payments should be negative, but a favorable comparison base from the execution of a corporate welfare fund (KRW90.0bn) last year and a decline in new contract acquisitions should be positive. We forecast the reversal of KRW90.0bn in variable guarantee reserve gains in 4Q21 on upward adjustments to interest rate assumptions. Overall, we expect 4Q21E earnings to be largely in line with recurring levels.