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

Great Eastern Holding Limited (SGX: G07) announced its earnings last Friday. The reporting period was for 1 July 2015 to 30 September 2015.

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

You can catch the previous quarter’s report here.

Financial highlights

The following’s a quick summary of Great Eastern’s latest financial figures:

  1. Gross premiums collected (the revenue of the company) for the quarter was up 19% year-on-year to $2.5 billion.
  2. Profit attributable to shareholders, though, fell by 65% to $68.4 million for the reporting quarter.
  3. Subsequently, earnings per share (EPS) was down 63% from 41 cents in the third-quarter a year ago to 15 cents in the reporting quarter.
  4. As of 30 September 2015, the company had $3.8 billion in cash and equivalents and borrowings of close to just $400 million.

For the third-quarter of 2015, the insurer’s net asset value per share (an important proxy for the economic value of financial institutions) came in at $12.59, a 1.5% increase from where it was at the end of 2014. Revenue rose sharply for the quarter, but Great Eastern posted a decrease in profit. The bottom-line decline was due to a dip in profit from the insurance business.

Operational highlights

For the reporting quarter, profit from life assurance plunged 64% year-on-year to $62.2 million. Profit from general insurance held up a little better, but there was still a 5% dip from a year ago to $6 million for the reporting quarter. As a whole, Great Eastern’s profit from the insurance business was down 62% to $68.2 million.

To gain more insight on this profit decrease, we can look at the source of profits as 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. On this count, operating profit fell by 13% year-on-year to $129.5 million. Operating profit was affected by a weakened Malaysian Ringgit as well as larger death and medical claims.

The non-operating profit did not so well either. The profit segment, which comprises of changes in the fair values of assets and liabilities, fell to negative territory with a sizable loss of $78.7 million. As mentioned before, the changes in fair value of assets may be volatile from quarter to quarter. As such, we may want look at the longer-term record of the company instead of putting too much weight on quarterly fair value adjustments.

Total weighted new sales was $266.2 million for the reporting quarter, a 33% increase compared to the third-quarter last year. Weighted new sales in Singapore saw a significant gain of 49% from a year ago to $185.9 million. According to Great Eastern, its Singapore operations experienced strong demand for two new product launches. In contrast, weighted new sales in Malaysia was flat.

Acting Group CEO Norman Ip had given the following comments regarding Great Eastern’s reporting quarter in the earnings release:

“The Group delivered robust growth in new sales during the quarter, particularly in Singapore, with the introduction of new products. Moving into the fourth quarter, we have lined up more new products and are optimistic of sustaining the existing sales momentum.

As for profit, while the performance of our operations in Malaysia remained stable, contribution to the Group’s reported profit in Singapore Dollars was reduced by the further weakening of the Ringgit. The Group’s profit was also impacted by significant unrealised losses from credit spreads, equity prices and interest rates movements. Notwithstanding the mark-to-market losses, the Group’s investment portfolio remains sound.”

Foolish summary

At last Friday’s closing price of $21, Great Eastern is priced just under 1.7 times its book value and has a trailing dividend yield of 2.6%.

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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.