Hanwha Investment & Securities lowered its target price, saying Samsung Life Insurance(032830) posted results in its core business in the second quarter that fell well short of market expectations this year and its insurance profit outlook also declined. It also cited the lack of a clear shareholder return policy on special gains as a factor limiting further share-price gains, even though the value of its Samsung Electronics equity has risen.
On the 14th, Kim Do-ha, an analyst at Hanwha Investment & Securities, cut the target price for Samsung Life Insurance by 3% to 336,000 won from 346,000 won. The investment opinion was kept at "Hold." The previous trading day's closing price was 291,500 won.
Samsung Life Insurance's second-quarter consolidation net profit attributable to controlling shareholders was 689.9 billion won, down 9% from a year earlier. It missed Hanwha Investment & Securities' estimate and the market consensus by 16% and 9%, respectively. Considering that consolidated subsidiaries' earnings were better than expected, Samsung Life Insurance's standalone operating profit fell more than 60% short of securities firms' estimates and market expectations.
The deterioration in insurance profit and loss was pronounced. Second-quarter insurance profit and loss was 276.6 billion won, down 50% from the same period last year and 25% below Hanwha Investment & Securities' estimate. As loss ratios for both survival and death coverage rose, the variance between actual and expected insurance claims, or the claims experience variance, was about 80 billion won worse than expected.
The investment segment also weighed on earnings. Investment profit and loss in the second quarter posted a loss of 92.3 billion won, swinging to a deficit from a year earlier. The general account's investment profit and loss also recorded a deficit of 8.6 billion won. While underlying investment performance, excluding funding costs from interest and dividends, met expectations, 85 billion won in variable insurance hedge losses stemming from asset market volatility was reflected. The separate account's investment profit and loss also recorded a loss of 84 billion won.
Kim said the weakness in the investment segment is largely one-off, but the worsening insurance profit and loss is likely to affect the earnings outlook. Reflecting the second-quarter weakness and the rising trend in claims, the net profit estimate for Samsung Life Insurance was cut by 7% for this year and 6% for next year.
A decline in business value is also behind the target price adjustment. Hanwha Investment & Securities estimated that Samsung Life Insurance's business value fell by 320 billion won compared with the previous report. The value of its Samsung Electronics equity increased by 130 billion won, but that was not enough to offset the decline.
It also assessed that plans for utilizing potential large special gains from Samsung Electronics equity remain uncertain. Kim said, "There is no clear return policy presented for the expected large special gains from Samsung Electronics," adding, "Instead of directly reflecting that expectation in earnings estimates, we maintain a method of valuing it through a net asset value (NAV) discount rate." Kim maintained a Hold view, saying, "Upside is limited at the current share price."