The company is one of two life insurance companies listed on the Singapore market – the other being the UK’s Prudential (SGX: K6S).
Great Eastern, which is substantially owned by Oversea-Chinese Banking Corporation (SGX: O39), has one of the highest Return on Equity (RoE) in the Singapore market. At 25%, it generates twice as much profit for every shareholder dollar than the average of the 30 companies that make up the Straits Times Index (SGX: ^STI).
Interestingly, its Net Income Margin is not especially high. At 10%, the margin is about half that of Singapore’s blue chips. What’s more last year’s margin was unusually high. Over the last five years, its Net Income Margin was around 5%.
Great Eastern Holdings is not especially strong at sweating its assets either. An Asset Turnover of 0.2 would imply that the insurer generates $20 of sales for every $100 of assets employed in the business. The average for Singapore’s blue chip is more than twice that.
However, Great Eastern uses a fair amount of leverage. Its Leverage Ratio of 12 is six time higher than the market average. Coincidentally, Prudential uses a hefty dose of leverage too.
By piecing together the Great Eastern jigsaw, it is easy to see what makes the insurer roar. Its Return on Equity of 24.7% is the product of a modest Net Income Margin of 10.3%; a casual Asset Turnover of 0.2 and a hefty Leverage Ratio of 12.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock — Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock — Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.
Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool’s purpose is to help the world invest, better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.