Issuing Capital Securities And Utilizing Reinsurance Will Strengthen K-ICS Ratio And Financial Stability

Key Takeaways

• Strengthening global market presence and digital capabilities could boost revenue and competitiveness, while enhancing asset profitability and risk management may improve net margins.
  
• Issuance of capital securities and reinsurance strategies aim to improve financial stability, potentially enhancing earnings and shareholder value through better dividend prospects.
  
• Increased cancellations and regulatory changes are pressuring earnings, capital adequacy, and the ability to manage long-term obligations and shareholder returns.

Catalysts

Provides various insurance products to individual and corporate customers in South Korea, Vietnam, China, Indonesia, and internationally.

• Hanwha Life's plans to strengthen its global market occupancy and digital capabilities signal a potential for improved revenue generation and market competitiveness.
  
• The aim to secure an organization of 36,000 people and achieve 16% growth in general protection agencies is expected to increase revenue streams and improve market share.
  
• The company intends to enhance asset portfolio profitability and strengthen risk management, which could lead to improved net margins and investment income.
  
• Hanwha Life's issuance of capital securities and utilization of reinsurance for risk coverage are strategies to boost the K-ICS ratio, reflecting enhanced financial stability, potentially improving the earnings outlook.
  
• The focus on regulatory improvements regarding distributable earnings and the proposal to offset unrealized gains and losses reflects a forward-looking approach to ensure dividend payouts, enhancing shareholder value through improved earnings potential.

Hanwha Life Insurance Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hanwha Life Insurance's revenue will decrease by 41.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.4% today to 18.6% in 3 years time.
• Analysts expect earnings to reach ₩840.8 billion (and earnings per share of ₩1074.86) by about March 2028, up from ₩531.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩935.2 billion in earnings, and the most bearish expecting ₩704.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.1x on those 2028 earnings, up from 3.8x today. This future PE is lower than the current PE for the KR Insurance industry at 4.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.7%, as per the Simply Wall St company report.

Hanwha Life Insurance Future Earnings Per Share Growth

Risks

• Increased cancellations and losses have negatively impacted the CSM balance, potentially affecting earnings stability and future profitability.
  
• Rising surrender reserves due to new protection policies could limit distributable income, influencing dividend payout capabilities and shareholder returns.
  
• Regulatory changes and declining interest rates are expected to further pressure the K-ICS ratio, potentially impacting the company's capital adequacy and risk management.
  
• The valuation decline in overseas commercial real estate could affect asset quality and result in recognized losses, impacting investment income and overall financial health.
  
• Strengthened liability discount rate regulations could continue to negatively impact the solvency ratio, affecting the company's ability to meet long-term obligations and invest in growth.

Valuation

• The analysts have a consensus price target of ₩3203.571 for Hanwha 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 ₩4200.0, and the most bearish reporting a price target of just ₩1900.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩4514.2 billion, earnings will come to ₩840.8 billion, and it would be trading on a PE ratio of 4.1x, assuming you use a discount rate of 12.7%.
• Given the current share price of ₩2695.0, the analyst price target of ₩3203.57 is 15.9% higher.
• 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.