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Shinkong Life's valuation falls below expectations

Shinkong Life Insurance Co (新光人壽) unveiled for the first time the firm's embedded value yesterday, but the results appeared to be far behind market expectations.

Embedded value is calculated by adding the value of present and expected future profits of a firm.

Shinkong Life is estimated to have embedded value of NT$62 billion, or NT$24.6 per share of the value of its parent company Shinkong Financial Holding (新光金控), according to a calculation by Deloitte Actuarial and Insurance Solutions.

Taking the value of new business into account, the financial holding company is expected to be valued at NT$94.1 billion, or NT$37.3 per share, five years from now, according to Deloitte.

The result however seemed lower than market expectations.

Shinkong Life was originally estimated to have over NT$100 billion worth of embedded value, which can be converted into over NT$35 per share of Shinkong Financial, according to a report by Taipei-based Polaris Securities Co (寶來證券) released last month.

The financial holding firm yesterday reported after-tax profits of NT$2.7 billion, or NT$0.9 per share, on total revenue of NT$38.45 billion in the first two months of this year, up from NT$33.58 billion a year ago.

Shinkong Life is also estimated to possess NT$111.6 billion worth of property, or nearly 137,000-ping of real estate across the nation, according to Deloitte.

The insurer, which is active in arranging real estate securitization, is expected to rake in around NT$9 billion worth of income through the issuance of securities backed by its real estate this year, Shinkong Life's executive vice president Reghpa Wu (吳章偉) said.

The company hopes to gain nearly NT$3 billion in income through the issuance of NT$3 billion of securities backed by its Tun-nan Building later this year, on top of a NT$2.8 billion real estate asset trust for its Chungshan Building.

The company also expects to reap another NT$6 billion of income by issuing NT$8 billion worth of securities, or real estate investment trusts (REITs), backed by its properties, which include Jasper Villa in Taipei's Tienmu district and some floors of the Shinkong International Business Building, Wu said. The issuance of the REITs is expected to be finalized by the year's end, he added.

The insurer, which remains bullish about the nation's commercial real estate market, will divert the capital into the property market as well as other investments like securities and bonds, Wu said.

Since Shinkong Financial Holding is moving more aggressively than expected in securitizing its real estate, Concord Securities has raised its forecasts for the company's net income for this year to NT$8.09 billion, or NT$2.54 per share, from the previous NT$7.36 billion, or NT$2.31 per share.
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