Great Eastern Holding Limited’s Latest Earnings: What Investors Need to Know

Great Eastern Holding Limited (SGX: G07) announced its fiscal second-quarter earnings early this morning. The reporting period was for 1 April 2015 to 30 June 2015.

The insurer is a majority owned subsidiary of Oversea-Chinese Banking Corp Limited (SGX: O39), which is also known as OCBC. Great Eastern, which is one of the oldest insurance establishments in Singapore, mainly provides life assurance and general insurance products.

You can catch up with the insurer’s previous quarter’s report here.

Financial highlights

The following’s a quick take on Great Eastern’s latest financial figures:

  1. Quarterly gross premiums collected (the revenue of the company) for Great Eastern was down 8% year over year to $1.8 billion.
  2. For the reporting quarter, profit attributable to shareholders rose by 14% from a year ago to $277.7 million.
  3. Subsequently, earnings per share (EPS) was up 12% from 52 cents in the second quarter last year to 58 cents.
  4. As of 30 June 2015, Great Eastern had $3.7 billion in cash and equivalents and borrowings of $399.5 million.

For the second quarter of 2015, the insurer’s net asset value per share came in at $13.00, which represents a 5% increase from where it was at the end of 2014. While revenue was stifled for the quarter, Great Eastern still managed to post an increase in profits. The board of directors also declared an interim dividend of 10 cents per share for the quarter, unchanged from the previous year.

Operational highlights

For the second quarter of 2015, profit from life assurance plunged 40% to $132.2 million while profit from general insurance followed suit with a 14% drop to $6.9 million. As a whole, profit from the insurance business was down 39% to $139.1 million.

To gain more insight on this profit decrease, we can split the source of this profit into two components: The operating profit and the non-operating profit.

The operating profit is defined as premiums minus claims, surrenders, commissions, expenses and changes in reserves, plus net investment income. Operating profit fell by 7% to $132.2 million from a year ago.

On the other hand, the non-operating profit, which mainly comprises of changes in fair value of assets and liabilities, slipped to negative territory with losses of $8.8 million. As mentioned before, the changes in fair value of Great Eastern’s assets may be volatile from quarter to quarter. As such, we may want to look at the company’s longer-term track record instead of putting too much weight on quarterly fair value adjustments.

Total weighted new sales was $203.9 million for the past quarter, a decrease of 4% compared to the second quarter last year. Weighted new sales in Singapore saw a 9% drop from a year ago to $120.4 million. According to the insurer, its Singapore operations had lower sales from its agency channel. In contrast, weighted new sales in Malaysia was stable.

Acting Group CEO Norman Ip added his comments for the reporting quarter:

“Q2-15 was a relatively slow quarter for Great Eastern, particularly in the Singapore market where the launch of single premium Participating products was curtailed in view of anticipated rise in interest rates. Declines in the equity markets and the widening of swap spreads also led to unrealised mark-to-market losses in our portfolio this reporting quarter which resulted in a lower non-operating profit from the insurance business for 6M-15.

Looking ahead, volatility in the global financial markets will continue as uncertainties linger over the Greek crisis, US interest rate hike, and slowdown in the Chinese economy. The operating environment is also expected to be increasingly challenging, with stiffer competition from both new and existing players, changes in government schemes and new regulatory requirements. To bolster sales, Great Eastern has stepped up its sales initiatives by launching more products in the second half of the year.”

Foolish summary

At Monday’s closing price of $23.74, Great Eastern is priced at just under two times its latest book value and has a trailing dividend yield of 2.3%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.