Expanding Health Offerings Will Attract Investors But Regulatory Risks May Impact Profitability

Key Takeaways

• Expanding health product offerings and enhancing shareholder returns are expected to drive business growth and attract investors.
  
• Improved underwriting and strategic focus on senior segments position the company for long-term growth and efficiency gains.
  
• Regulatory changes and market volatility threaten Samsung Life's solvency, profitability, and revenue growth by impacting margins, valuation, and investment returns.

Catalysts

Engages in the life insurance business in Korea and internationally.

• Samsung Life Insurance's efforts to expand its health product offerings, including coverage for dementia and nursing care, are expected to drive significant new business growth, which will positively impact future revenue.
  
• The company is working on enhancing its shareholder return program to 50%, which can attract more investors and potentially improve earnings per share.
  
• Samsung Life is implementing improved underwriting processes and distribution infrastructure to boost the competitiveness of their health products, which is expected to improve net margins through efficiency gains.
  
• The introduction of new financial products and strategic focus on senior business segments positions the company for long-term revenue growth, responding to demographic changes.
  
• With a planned increase in alternative investment allocations, the company aims to improve investment returns, which could enhance overall earnings and stabilize the solvency ratio under varying market conditions.

Samsung Life Insurance Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Samsung Life Insurance's revenue will decrease by -20.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.4% today to 18.6% in 3 years time.
• Analysts expect earnings to reach ₩2809.4 billion (and earnings per share of ₩13549.04) by about December 2027, up from ₩2487.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₩2359.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.3x on those 2027 earnings, up from 7.3x today. This future PE is lower than the current PE for the KR Insurance industry at 13.1x.
• Analysts expect the number of shares outstanding to grow by 4.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.41%, as per the Simply Wall St company report.

Samsung Life Insurance Future Earnings Per Share Growth

Risks

• Regulatory tightening in Korea, such as a decrease in the discount rate and changes in solvency capital requirements, could pressure Samsung Life's solvency ratio and capital requirements, affecting future earnings stability.
  
• Volatility in financial markets, including interest rate fluctuations and falling share price valuations (e.g., Samsung Electronics shares), might impact both investment returns and capital strength, posing risks to net margins and overall profitability.
  
• The impact of changes to actuarial assumptions, particularly on insurance profits and valuation losses, could influence earnings unpredictably, negatively affecting net margins.
  
• Competitive pressures in the insurance market and adjustments in actuarial assumptions, such as lapse rates, may lead to a decline in new business CSM margin, thus affecting revenue growth.
  
• The risk of potential valuation losses on alternative investments and the uncertainties in interest rate and share price movements can lead to volatility in investment returns, impacting net margins and earnings.

Valuation

• The analysts have a consensus price target of ₩120736.84 for Samsung Life Insurance based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩150000.0, and the most bearish reporting a price target of just ₩98000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₩15122.7 billion, earnings will come to ₩2809.4 billion, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 8.4%.
• Given the current share price of ₩101500.0, the analyst's price target of ₩120736.84 is 15.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.