* Lower-than-expected offering price; the possibility of an interest rate hike is a positive

 - Retail subscription ends today. Investors who expect interest rates to rise should consider partaking in the subscription.

After the IPO, the total outstanding shares will be 868mn; Hanwha Group 50.3% (incl. Hanwha E&C 24.9%), and the Korea Deposit Insurance Corporation (KDIC) 24.8%. Given the KDIC’s more than 20% stake, the major decision-making can be done with the approval of 75% of the participating directors, including a director designated by the KDIC. We expect the stock to be listed on or around next Wednesday. Hanwha Group and the KDIC agreed to a 180-day lockup period after the IPO.

The implied market value at the offering price of W8,200 amounts to W7.1trn. We think the valuation is slightly lower than the fair valuation. FY09F PBR and ROE are 1.28x and 13.3%, respectively. We estimate FY10F ROE and PBR at 10.2% and 1.16x, respectively. While, P/EV multiples are approximately 1x; 1.02x for 2009 and 0.94x for 2010. For reference, P/E multiples are 14.8x for 2009 and 12.5x for 2010.

Korea Life’s embedded value (EV) reflects a W344.9bn after-tax asset revaluation gain. However, when considering that the valuation model did not reflect the time value of financial options & guarantees, the fact that the P/EV multiple as a secondary indicator is about 1x seems to have symbolic meaning. We think the PBR is somewhat low given the 10% earnings growth (thanks to the improving spread and cost savings) and safe asset portfolio. For reference, recent non-life insurers’ PBRs are 1.5x for Samsung F&M, 1.2x for Dongbu Insurance, 1.1x for Hyundai M&F, and 0.9x for LIG Insurance, Meritz F&M and Korean Reinsurance. Considering the lower valuations of non-life insurers caused by life insurers’ IPOs and seasonally weak earnings, we recommend seeking attractive valuations from second-tier non-life insurers.

The investment point for life insurers after the IPO is growing economic value backed by higher interest rates. We have two reasons for our view. 1) Considering the asset-liability duration gap of 4.5 years and W40trn in assets, total shareholders’ equity’s theoretical value should grow to W1.7trn (or 31% increase from 2009F total shareholders’ equity) if interest rates rise by 100bp. 2) Given EV sensitivity, EV should increase by W505bn, or 9% of EV, if the investment yield rises by 25bp. If assuming a 100bp rise in the investment yield, the increase amounts to 36% of EV. In this case, we assume interest rates will rise by 100bp and remain at that level. Therefore, the abovementioned effect would act in an opposite manner if interest rates fall. Interest rate trends provide a number of inherent opportunities and risks.