Korea Life Shares Sold Too Cheap?
By Yoon Ja-young
Staff Reporter
Following Hanwha Group's acquisition of Korea Life Insurance shares, opinions are divided as to whether it was sold at a fair price. A more basic problem is how life insurance companies should be valued once they are listed on the bourse.
Hanwha Engineering & Construction said Tuesday that it had acquired a 17-percent stake in Korea Life Insurance from Orix, Japan's leading leasing company, at 5,430 won per share, or 655.4 billion won in total. Combined with the stake it already had in the insurer, Hanwha Group now possesses a 51 percent stake in the country's second largest life insurer with 45 trillion won in total assets.
Many analysts, however, said the price was unexpectedly low, and some even raised suspicions that there might have been secret deals between Hanwha and Orix.
The two parties requested that Milliman Consulting, a U.S.-based actuarial firm, determine the share price. It came up with a 5,430 won, making the price book-value ratio (PBR) of the insurer around 1.12.
The PBR slightly over 1, however, is too low considering the gains that will come from listing and the premium on the over-the-counter market, according to many analysts. Generally, they estimate the appropriate PBR for insurers is 1.5.
Currently, life insurers' shares are traded at up to nine times their PBR on the over-the-counter market. Samsung Life Insurance, traded at around 785,000 won, has a 1.8 PBR, while Mirae Asset Life Insurance is traded at 38,250 won, with a 9.3 PBR. Kumho and Tong Yang also have PBRs hovering above four.
Kyobo Life Insurance, which recently announced a rights issue with 15.9 percent discount rate from the market price, set the price of its shares at a 1.9 PBR.
``The prices on the over-the-counter market are over-valued, but it should have been priced higher than 5,430 won,'' said Lee Chul-ho, an analyst at Korea Investment and Securities. Samsung Securities also said the appropriate price of the life insurer is 9,185 won. Daewoo Securities estimated it at around 9,000 won, and Hana Daehan Investment and Securities, at 13,250 won.
Hwang Kyu-won, an analyst at Tong Yang Investment Bank, meanwhile, said 5,430 won is an appropriate price for the life insurer. ``The over-the counter-market has a bubble. It isn't cheap when considering the book value is 4,900 won.'' It is difficult to determine the appropriate price in advance. ``What matters most is the value of contracts they have. It really isn't easy,'' said Joo Sang-shin, an analyst at Dongbu Securities.
Most analysts, however, seem to regard it as a good bargain for Hanwha, as they are raising target prices of Hanwha one by one to reflect the corporate value augmentation. Seoul Securities and Tong Yang Investment Bank raised the target price of Hanwha to 80,000 won, and Hana Daehan Investment and Securities also pulled it up to 76,300 won, from 65,100 won. It closed at 64,500 won Wednesday, rising 500 won, or 0.78 percent, from the previous day.