Hanwha Investment & Securities cut its target price for Samsung Life Insurance (032830.KS) to 336,000 won from 346,000 won, a 2.9% reduction. The cut reflects a drop in the insurer's business value after its core second-quarter results fell well short of market expectations and its insurance earnings outlook worsened.
In a report on the 14th, Hanwha analyst Kim Do-ha lowered the target price to 336,000 won, citing a 3.2 trillion won decline in the value of Samsung Life's insurance business. The valuation applied an insurance business value of 18.858 trillion won and a Samsung Electronics stake value of 48.434 trillion won.
Kim also adjusted the earnings outlook. The analyst cut this year's estimate for net profit attributable to controlling shareholders to 2.723 trillion won from 2.942 trillion won, a 7.4% reduction. The estimate for next year was also lowered to 2.473 trillion won from 2.638 trillion won, a 6.3% cut. Adjusted earnings per share (EPS) forecasts were lowered by 7.4% and 6.3% for this year and next year, respectively.
The weak second-quarter results were cited as the reason for the earnings revisions. Samsung Life's consolidated net profit attributable to controlling shareholders came to 689.9 billion won in the second quarter, down 9.1% from a year earlier. That was 15.7% below Hanwha's estimate and 9.0% below the market consensus. On a separate basis, operating profit fell 73.5% from a year earlier to 184.3 billion won, missing market expectations by more than 60%. Insurance earnings fell 50% to 276.6 billion won, while investment earnings swung to a loss of 92.3 billion won.
A worsening gap between expected and actual claims weighed on the outlook for future results, according to the report. Loss ratios rose for both survival and death coverage, leaving the claims gap about 80 billion won worse than initially estimated. On the investment side, the results reflected an 850 billion won hedging loss on variable-linked products tied to volatility in asset markets, along with losses on separate-account investments. "The weakness in the investment segment is largely one-off, while a strong rise in incurred claims is continuing, so the downward revision to future earnings estimates came mainly from insurance earnings," Kim said.
Even with the higher value of the Samsung Electronics stake, the room for a stock rerating was seen as limited. Because Samsung Life has not laid out a specific shareholder-return policy for the large special gains it stands to receive from Samsung Electronics, the analyst chose to reflect that through the net asset value (NAV) discount rate rather than directly in earnings estimates.
