[IPO Preview] Seoul Guarantee Insurance, Competing with Strong Performance and High Dividends

Seoul Guarantee Insurance, the largest comprehensive guarantee company in Korea, is set to be listed on the KOSPI market. Seoul Guarantee Insurance is aiming for a successful public offering by highlighting its stable financial structure, solid performance, and high dividend payout ratio.

Established in 1969, Seoul Guarantee Insurance is the largest comprehensive guarantee company in Korea, offering a variety of products including various performance guarantees, identity guarantees, mobile phone installment guarantees, mid-interest loan guarantees, and jeonse deposit loan guarantees. It ranks as the 4th largest guarantee company globally based on gross written premiums among members of ICISA (International Credit Insurance & Surety Association).

As of the end of last year, the company reported sales (operating revenue) of KRW 2.6363 trillion and net income of KRW 568.5 billion, with an annual guarantee supply amount of approximately KRW 323 trillion. Its equity capital stands at KRW 5.0411 trillion. It holds credit ratings of A+ and AA- from global credit rating agencies S&P and Fitch, respectively.

As of the end of the first half of this year, sales reached KRW 1.3268 trillion, an increase of about 10.7% compared to the same period last year. Insurance income, which accounts for about 85% of total sales, showed stable growth, while investment and operating income increased by about 30%, driving overall sales growth.

However, operating profit and net income decreased by about 40% compared to the same period last year. The main reason was a sharp increase in insurance operating expenses. Insurance operating expenses for the first half of this year were KRW 961.8 billion, up about 54% from the same period last year. The increase in accident insurance claims during the first half compared to the same period last year is analyzed as the cause of the worsening expenses.

This public offering consists entirely of secondary shares. The largest shareholder of Seoul Guarantee Insurance is the Korea Deposit Insurance Corporation (KDIC), holding 93.85%. Seoul Guarantee Insurance received KRW 10.25 trillion in public funds from KDIC during the 1997 Asian financial crisis. Subsequently, in July last year, the Public Fund Management Committee under the Financial Services Commission announced plans for the phased sale of Seoul Guarantee Insurance’s shares, leading to this listing.

KDIC plans to offer 6,982,160 shares (10%) to the market in this offering. The remaining shares will be subject to a six-month lock-up period, after which up to an additional 33.85% will be sold within 2 to 3 years. The sale of controlling shares will be considered thereafter.

Seoul Guarantee Insurance proposed a price range for the public offering of KRW 39,500 to KRW 51,800 per share. The total offering amount is estimated between KRW 275.8 billion and KRW 361.7 billion, with a market capitalization ranging from KRW 2.7579 trillion to KRW 3.6167 trillion. The offering price was calculated by applying the average price-to-book ratio (PBR) of four comparable companies to Seoul Guarantee Insurance’s book value per share.

The comparable companies selected by Seoul Guarantee Insurance are Samsung Fire & Marine Insurance, DB Insurance, French credit insurer Coface, and American insurer Travelers. Among these, Travelers has the highest PBR at 1.68 times, indicating a higher valuation. The average PBR of these four companies is 0.95 times, which, when multiplied by the book value (BV) of KRW 4.8157 trillion, results in an appropriate market capitalization of KRW 4.556 trillion. A discount rate of 20.79% to 39.6% was then applied to determine the offering price range.

One of Seoul Guarantee Insurance’s strengths is its dividend payout ratio. On a separate basis, the company’s dividend payout ratios over the past three years were 32.0% in 2020, 50.2% in 2021, and 50.2% in 2022. The dividend payout ratio represents the proportion of net income paid out as dividends. Last year, the company distributed half of its earnings to shareholders.

If Seoul Guarantee Insurance records net income in the second half of this year similar to the first half, it will achieve a total net income of KRW 375.7 billion. If half of this is paid out as dividends, shareholders would receive approximately KRW 2,690 per share. Based on the offering price, this corresponds to a dividend yield of about 5% to 7%.

Seoul Guarantee Insurance stated in its securities registration statement, “Our company records an overwhelming solvency margin ratio compared to other insurers, and we plan to maintain a dividend payout ratio of over 50% going forward,” adding, “We will continue a stable shareholder return policy.”

Meanwhile, Seoul Guarantee Insurance plans to conduct a demand forecast for institutional investors from October 13 to 19, followed by a general subscription from October 25 to 26, and aims to be listed on the KOSPI market in November. The lead underwriters are Mirae Asset Securities and Samsung Securities.