Hanwha Investment & Securities said on the 11th that although it has observed a sharp narrowing over the past month in the net asset value (NAV) discount rate applied to the value of Samsung Electronics equity held by Samsung Life Insurance, the basis is lacking, adding that it is time to carefully consider how much NAV value to assign when approaching the investment.
It maintained an investment opinion of neutral (Hold) and a target price of 312,000 won. Samsung Life Insurance closed at 368,000 won the previous day.
Samsung Life Insurance's share price has risen 134% so far this year. That far outpaces the KOSPI index's gain over the same period (83%) and the average return of insurance stocks so far this year (21%).
Hanwha Investment & Securities raised its target price for Samsung Life Insurance four times this year, during which it estimated Samsung Life Insurance's business value at 2.21 trillion won and the value of Samsung Electronics equity at 4.03 trillion won.
Kim Do-ha, an analyst at Hanwha Investment & Securities, said, "Since the end of the first quarter this year, especially over the past month, we have observed a sharp narrowing in the NAV discount rate applied to the value of Samsung Electronics equity held by Samsung Life Insurance."
Keeping the NAV discount rate on the value of Samsung Electronics equity fixed at 55%, Samsung Life Insurance's business value would have to increase 69% to explain the company's share price rise during the second quarter.
Conversely, if Samsung Life Insurance's business value is fixed at 2 trillion won as estimated when Hanwha Investment & Securities calculated the target price in May, the value of Samsung Electronics equity would have to increase 155%. But Samsung Electronics' share price rose 81% over the same period.
Kim said, "We judge it unreasonable to assume a sharp increase in business value to explain Samsung Life Insurance's share price rise," adding, "Therefore, we infer that the market has reflected a narrower NAV discount rate for the value of Samsung Electronics equity."
At that time, fixing the business value during the quarter and back-calculating yielded a drop in the NAV discount rate from 55% to about 37% at present.
Kim explained, "Samsung Life Insurance has no precedent of allocating nonrecurring gains—such as gains on equity sales and special dividends that could arise from its holdings—on the same principle as other profits, nor has it said it plans to do so," adding, "We still see no grounds to narrow the NAV discount rate, and it is paramount at this time to consider how much NAV value to assign when approaching the investment."