Samsung Life 2Q21 Sneak Peek: High Base Effect to Reach Profits

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The author is a KB Securities analyst. He can be contacted at [email protected] – Ed.

Hold BUY, target price of 103,000 KRW

We are maintaining BUY and our TP of KRW103,000 on Samsung Life. We expect a consolidated NP in 2Q21 (attributable to controlling interests) at KRW288.9bn, which is 9.8% below the market consensus.

Robust growth in sales of protection-type policies; relatively light evaluation load; slight pressure of red blood cells

Our rating remains unchanged based on the following:

(1) Efforts to promote new sales of IG (general illness) policies and other types of protection should support sales of protection-type insurance against a backdrop of a 10-20% drop in the APE of new insurance type protection among life insurers due to health insurance.

(2) Samsung Life has the lightest valuation load among life insurers after market corrections due to decelerating growth in long-term bond rates.

(3) The pressure of red blood cells is mild.

It should be noted that our TP was derived by applying a target multiple of 0.5x (3.7% sustainable ROE, 5.5% cost of equity, 2.2% final growth rate) to 12 KRW221 551 avant-garde BVPS million.

2Q21 overview: Consolidated NP at KRW 288.9 billion (-35.6% year-on-year); decrease due to base effect

We expect a consolidated NP in 2Q21E (attributable to majority interests) at KRW288.9bn (-35.6% YoY). The result should erode given the high base effects on the technical result, the variable guarantee reserves and the contributions to the results of the subsidiaries / beneficiary certificates. Specifically, we estimate the underwriting profit at KRW 349.1 billion (-22.2% year-on-year). During the early stages of the pandemic, risk-to-loss ratios plunged due to a drop in demands for diagnosis and surgery. However, we expect the risk loss ratio to rebound 7.5 pp year-on-year and mortality gains to decline 33.3%. In addition, load gains are expected to decline by 11.1% year-on-year due to rising new business costs against a backdrop of stable expected expenses. As for the variable guarantee reserves, we expect a reversal of KRW80.0 billion, down significantly from a reversal of KRW144.6 billion in 2Q20. At the same time, the subsidiaries consolidated and accounted for by the equity method should continue to perform well, but the contribution of consolidated profit certificates should deteriorate year-on-year. Given the significant dividend income and capital gains from asset disposals in 1Q21, a decline in capital gains from asset disposals seems inevitable. Considering these factors, we believe 2Q21 results will be better than expected.


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