Looking Beyond Great Eastern’s Profit Slump

great eastern logo Insurance group, Great Eastern Holdings Limited (SGX: G07) announced on Thursday that its 2Q profit plunged 77% to S$18.6 million from S$81.4 million a year ago while revenue for the first six months fell 34% to S$226.1 million.

The group CEO explained that its non-operating loss and commented that “towards the end of the quarter, financial markets reacted to the potential tapering of the US quantitative easing programme, resulting in a significant unrealised mark-to-market loss in the Singapore Non-participating Fund.”

Nevertheless, the underlying fundamentals of the insurance business remain sound. Great Eastern registered an increase of 32% in operating profits to S$154.5 million for 2Q 2013 compared to the previous year. Total weighted new sales for the quarter also soared 34% year-on-year to S$263.9 million, mainly driven by strong sales in both Singapore and Malaysia.

Quite often, many new life policies are cancelled after signing. Thus, it is important to take a look at the “New Business Embedded Value” (NBEV) – a common benchmark used to measure long term profitability of new sales for life insurance companies. Great Eastern has performed well with its NBEV improving 20% year-on-year to S$101.5m in Q2‐13 on strong sales performance.

Commenting on the Group’s Q2-13 financial results, Group Chief Executive Officer Chris Wei said: “I am pleased to note that key operating metrics like operating profit, total weighted new sales and NBEV, have all shown improvements year-on-year. In particular, we see sustained sales momentum in our established markets as we align our product strategies to the Live Great Programme, the industry’s first integrated health and wellness programme.”

The insurer has proposed an interim tax exempt (one-tier) dividend of 10 cents per ordinary share, bringing the full-year payout to 37 cents, unchanged from last year. At Wednesday’s closing price of $17.30, Great Eastern is now selling for 7.65 times its earnings and offers a dividend yield of 2.14%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.   Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.