Title Mercuries Life (2867 TT) Buy, TP: NT$20
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Title:Mercuries Life (2867 TT) Buy, TP: NT$20
Download File:2867 TT Mercuries Life long report 180503--sinopac.pdf 
Summary:Buy with TP of NT$20 (0.9x 2018F P/B): 1) MLI's percentage of overseas investment is now 9 ppts. below the statutory limit, giving it more wiggle room than its peers to boost its overseas investment. A new FSC regulation caps an insurance company¡¯s overseas investment position at 65% of their total investment. MLI thus can replace its OTC-listed international bonds with foreign bonds to boost its growth momentum of recurring income to outperform its competitors; 2) The duration of MLI's financial assets is just 9-years (vs. 12-years for the industry overall). The new capital to be invested each year accounts for 20% of usable funds, which is higher than that of other insurance firms. In the life insurance industry, MLI is the top beneficiary of rising bond yields; 3) Having a higher percentage of insurance agents than other insurance firms, MLI has good control over its cost of liability. Benefitting from the continuous drop of the cost of liability and increase of recurring income, MLI will enjoy a positive investment spread in 2018, a favorable factor for its stock valuation. MLI's current P/B ratio of 0.7x is at the low end of its 0.7x-1.4x historical range. We think the too-low valuation is partly due to the loss in 1Q18 from exchange rate fluctuation. Considering the stabilized USD exchange rate and MLI's recurring income growth, we believe MLI¡¯s P/B will start heading back toward 1x. We set our TP at NT$20 (0.9 X 2018 BVPS).
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