Anticipated 28% Revenue Fall Will Darken Insurance Industry Outlook

Key Takeaways

• Strong growth in foreign currency policies and CSM products is enhancing Shin Kong Life's revenue and market share leadership.
  
• Strategic lending and investment strategies are driving revenue and earnings growth across Shin Kong Financial's banking and securities divisions.
  
• Strong financial performance and growth, bolstered by leadership in insurance, stable bank asset quality, and recognized ESG efforts, enhancing investor appeal.

Catalysts

Provides a range of financial products and services in Taipei and internationally.

• Shin Kong Life's strong growth in foreign currency policies and high CSM products, with sales growing over 100% and positioning the company as an industry leader, is expected to enhance revenue and improve its market share significantly.
  
• Anticipated significant growth in CSM from new business in 2025, driven by protection products and high CSM health insurance riders, is likely to positively impact future earnings by improving CSM balance.
  
• Shin Kong Bank's plan to promote SME and overseas loans, along with expanding consumer loans, is set to increase net interest margin and generate higher net interest income, contributing to earnings growth.
  
• MasterLink Securities' capitalizing on the rise in stock prices and trading volume to boost proprietary trading income, which increased by 31.7% year-on-year, should continue to support revenue growth in the securities division.
  
• The focus on selling long-term regular-paid insurance products and mutual funds at the bank is expected to optimize clients' asset allocation, aiming for double-digit growth in wealth management income, further bolstering overall earnings.

Shin Kong Financial Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shin Kong Financial Holding's revenue will decrease by 28.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.9% today to 15.7% in 3 years time.
• Analysts expect earnings to reach NT$15.1 billion (and earnings per share of NT$0.83) by about April 2028, down from NT$20.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.1x on those 2028 earnings, up from 9.9x today. This future PE is greater than the current PE for the GB Insurance industry at 9.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.19%, as per the Simply Wall St company report.

Shin Kong Financial Holding Future Earnings Per Share Growth

Risks

• Shin Kong Financial Holding Company has demonstrated strong financial performance with a consolidated after-tax profit of NT$20.5 billion in 2024 and a 15.4% increase in consolidated shareholders' equity. This indicates robust revenue and earnings growth.
  
• The company's inclusion in the DJSI World Index and DJSI Emerging Markets Index highlights its recognized ESG efforts, potentially enhancing its reputation and attracting more investors, which could positively impact shareholder value and net margins.
  
• Shin Kong Life's strong growth in first year premium and its focus on high CSM products, especially the 100% increase in foreign currency policy sales, indicates a robust revenue generation capability and leadership in the insurance industry.
  
• Shin Kong Bank's net interest income and net income have shown significant growth, with an 8.2% increase in net interest income and a 29.3% increase in net income, driven by expanded net interest margins and wealth management fee income, suggesting sustainable earnings improvement.
  
• Asset quality at Shin Kong Bank remains stable with an NPL ratio of 0.12% and a coverage ratio over 1,000%, surpassing industry averages, which indicates low credit risk and potential for strong net margins through maintained loan quality.

Valuation

• The analysts have a consensus price target of NT$11.25 for Shin Kong Financial Holding based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NT$96.2 billion, earnings will come to NT$15.1 billion, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 5.2%.
• Given the current share price of NT$11.2, the analyst price target of NT$11.25 is 0.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.