SEOUL, KOREA - Samsung Life (SSL) posted 4QFY12 (end Mar) consolidated NP of W321.7bn, down 33% YoY, and FY12 NP of 983.4bn, up 4% YoY. We attribute the weak growth to slow investment profit growth on falling interest rates. Decelerating rotection-type growth was backed by lower loss and expense ratios, but this was not enough to offset the lower interest rates. We forecast FY13 NP will be flat YoY.
- (1) In FY12, SSL benefited from growing attention to annuities/savings-type insurance products due to changes in tax ystems for financial products, a lower threshold for consolidated taxes on financial income, retiring baby boomers and alling interest rates. (2) Channel competitiveness expanded into non-exclusive channels such as bancassurance/GA, and
showed promising prospects. These were instrumental in increasing size through relatively higher interest rates and ommission fees. (3) Internal efficiency indicators continue to improve. In particular, persistency rate increased despite xternal growth. This implies the steep growth during FY12 was likely from new customers.
- (1) Falling interest rates pose the biggest problem. Insurance liabilities in life insurance have longer duration, higher inancial leverage and more burden from fixed high rate liabilities compared to non-life insurance. (2) Changes in the industry required after the enactment of financial consumer protection laws are also uncertainties. However, since its 25th persistency rate reached 70% and as it has a relatively high dependence on its own sales channel consisting mainly of FCs, SSL’s burden will be relatively lower.
- We raised our TP to W120,000, and maintain SSL as our top pick within our life insurance universe. Short- mid-term NP growth appears unlikely. As another rate cut appears likely, we advise a long-term viewpoint. We nonetheless maintain our BUY recommendation and increase TP as SSL is expanding its dominance in the insurance industry (especially in wealthier markets), and improving its efficiency indicators, such as loss ratio and expense ratio. The high leverage once the interest rate increases also provides an optional value. Our TP of W120,000 is an arithmetic mean of W119,000 obtained via SOTP based PB ratio and trailing EVPS W128,000. Our TP from SOTP is the sum of operating asset value per share W62,974
and affiliate share value W56,496.
*Source: Korea Investment & Securities co.
