The author is an analyst at KB Securities. He can be contacted at [email protected] — Ed.
Slow profit growth
– Samsung Life published a consolidated 3Q21 NP (attributable to controlling interests) of KRW 129.2 billion, well below market consensus and our estimate.
— We attribute the shortfall to (1) the benefit of variable insurance coverage falling short of expectations and (2) the contribution from disposal/valuation capital gains well below expectations. That said, technical earnings and negative interest margin met expectations.
– We view 3Q21 earnings in a negative light: (1) Given the recognition of huge one-time earnings in 1Q21 (i.e. special dividends from Samsung Electronics), we expected 3Q21 divestment/valuation gains fall just as much as they did in the prior year, but the magnitude of the decline was larger than expected, increasing earnings volatility; (2) the resulting decline in annual profit should reduce the DPS.
— We are lowering DPS 2021E by 2.8% to KRW 3,400, assuming a payout ratio of 41.3% (based on consolidated NP), which is higher than last year’s 35.5%. The higher payout ratio is based on management’s commitment to increase the level to 50% by 2022.
Consolidated NP (to be controlled int.) of KRW 129.2 billion down 59.2% YoY
— Consolidated 3Q21 NP (attributable to controlling interests) of KRW 129.2 billion (-59.2% YoY) exceeded market consensus/our estimate of 54.7%/51.5%.
– We attribute the massive year-over-year decline to (1) a 19.5% year-over-year decline in underwriting profit (-27.4% for mortality profit, -10.4% for loading profit) , (2) a decrease of KRW 196.0 billion in profit for variable insurance guarantee (KRW 104.0 billion in 3Q20, -92.0 billion KRW in 3Q21) and (3) a marked decrease of the contribution of gains on sale/valuation. Net interest income was -84.0 billion KRW, down by KRW 48.0 billion year-on-year.
– The NP shortfall was attributable to (1) a difference of KRW 27.0 billion between the actual profit of the variable insurance guarantee and our estimate, (2) a difference of KRW 9.1 billion in the profit underwriting and (3) a lower than expected contribution from disposal/valuation gains.
– 3Q21 underwriting profit fell 19.5% YoY to KRW 339.8 billion, as risk loss ratio increased by 6.1 pp, lowering mortality profit by 27, 4% to KRW 157.8 billion, and loading profit fell 10.4% year-on-year to KRW 172.0 billion, despite lower new contract acquisition sales.
— The negative interest spread in 3Q21 improved by 1bp in T/T to -104bp.
— The profit for the variable insurance guarantee of -92.0 billion KRW is broken down into 60.5 billion KRW in commission income, 130.0 billion KRW in reserve provisions and 22.3 billion KRW in derivative hedging losses.
– The new 3Q21 APE contract was down 8.1% year-on-year. APE new protection type contracts fell 7.8%, which is relatively healthy given the poor performance of the sector as a whole.