[Click eStock] "Korean Re fair value is twice the market cap"... Target price up

[Asia Economy Reporter Ji Yeon-jin] Hana Financial Investment stated on the 25th that it maintains a buy investment opinion on Korean Re, judging that its appropriate business value is about twice the current market capitalization, and raised the target price to 19,000 KRW.

Lee Hong-jae, a researcher at Hana Financial Investment, said, "Korean Re has the best fundamentals in the insurance sector with not only mid- to long-term earnings and scale growth but also high dividend visibility, yet its stock price is only four times the price-to-book ratio (PBR), and the estimated dividend yield for this year reaches 7.8%." He added, "Last year, the COVID-19 reserves approximately doubled compared to the previous year, and the scale of global natural disaster losses was the third largest in the past 10 years and the fourth largest since 1970, but the net profit growth rate is expected to reach 21.1%."

Korean Re's net profit growth rate is estimated at 38.8% this year. Regarding the COVID-19 reserves, in the non-life insurance sector (expected 25 billion KRW), due to the accident exemption effect, the reserves will shrink this year, and in the life insurance sector, reserves were conservatively over-accumulated (expected 55 billion KRW), and with mortality decreasing, the reserve scale is inevitably expected to decline this year.

Furthermore, since global natural disasters in July and August were of record scale, the increase in natural disaster loss amount recognized in the third quarter compared to the previous year (47.8 billion KRW) can mostly be seen as a one-time factor. The expected profit growth rate of global reinsurers this year reaches 30%. Considering that the starting points of global reinsurance rate increases in the past 10 years were 2011 (second largest natural disaster damage scale) and 2017 (largest natural disaster damage scale), there is a possibility that the rate increase speed will accelerate this year.

The researcher said, "In addition to the improvement in the reinsurance market conditions, it is also positive that the new business of co-reinsurance underwriting has officially started," adding, "While the direct profit and loss impact of co-reinsurance underwriting is not significant, holding interest-bearing liabilities is expected to improve the solvency ratio under K-ICS." This enhanced capital capacity can lead to shareholder value enhancement such as dividend payout ratio improvement, and with increased capacity to hold other insurance lines and improved flexibility of investment assets, the visibility of mid- to long-term profit growth is expected to increase.