Samsung Life Insurance Earnings: Still No Visibility on Full-Year Dividend Number

We retain our fair value estimate of KRW 77,000 for Samsung Life Insurance 032830, equivalent to 0.32 times book value as of June 2023 and 9.1 times our earnings forecast for 2023. We continue to view Samsung Life as a relatively lackluster investment due to its chronically low return on equity (average of only 5% since its IPO in 2010), but see the shares as undervalued at their current price of 0.29 times book value. We think better visibility into future dividend increases could be a catalyst for revaluation, but 2023 interim earnings—the second quarter Samsung Life has reported under new IFRS 17 accounting—did not provide any news here. Our forecast remains for dividends of KRW 3,300 per share for 2023 (2022: KRW 3,000), increasing by KRW 200 annually thereafter.

Second-quarter annualized return on equity was 2.6%, versus 6.9% in the first quarter (when earnings were boosted by a penalty received from a corporate pension customer that switched products) and our full-year forecast of 3.6%. Net insurance income was KRW 438 billion, with amortization of contractual service margin, or CSM, at KRW 321 billion. Such amortization should be a reliable earnings contributor in the future and we project full-year CSM profit at KRW 1.42 trillion, accounting for the majority of our forecast pretax profit of KRW 2.15 trillion. Assuming that Samsung Life sells new policies that generate new-business CSM of around KRW 3.5 trillion in 2023 (double the KRW 1.8 trillion of new-business CSM in the first half), the CSM balance at year-end should be around KRW 12.8 trillion, or 11 years’ worth of future profits at the current amortization rate.

Net investment income was negative KRW 119 billion as reserve interest expense outweighed investment income. Although net investment income will be lumpy from quarter to quarter, we project a mildly positive balance on annual bases as Samsung Life periodically receives dividends from subsidiary Samsung Card and affiliate Samsung Securities.