Great Eastern Holding Limited’s Latest Earnings: Profit Tumbles

Great Eastern Holding Limited (SGX: G07) released its fiscal first-quarter earnings report yesterday. The reporting period was from 1 January 2016 to 31 March 2016.

Great Eastern is the oldest life insurance group in Singapore and Malaysia. The firm, which focuses mainly on life assurance and general insurance products, also has a presence in other geographical markets in Asia such as Indonesia, Vietnam, China, and Myanmar, just to name a few. You can catch the company’s results from the previous quarter here.

With that, let’s dig into the earnings release to see how the company has performed.

Financial highlights

For the reporting quarter, gross premiums increased by 21% year-on-year to S$2.26 billion. But, profit attributable to shareholders went in the opposite direction, plunging 56% from a year ago to close at S$96.9 million. The sharp decline in net profit can be attributed to two main underlying factors:

  1. Great Eastern’s profit from insurance business in the reporting quarter came in at $89.1 million, down 57% from the previous year. It was primarily caused by huge unrealized losses from the widening of credit spreads and a decline in equity markets as well as higher claims in the Singapore Non-Participating Fund.
  2. Despite registering a 126% jump in realized gains from the sale of investments and changes in fair value, the overall results from the Shareholders’ Fund’s Investments segment was pressured by unrealized foreign exchange losses from US dollar-denominated investments. The currency swing caused Great Eastern to book an exchange loss of S$12.2 million in the reporting quarter as compared to a gain of S$10.2 million a year ago. All told, profit from Shareholders’ Fund’s Investments tumbled by 37% to close at S$28.9 million.

As an insurer, a good proxy for the change in Great Eastern’s economic value would be the change in its book value per share. On that front, Great Eastern ended 31 March 2016 with a net asset value per unit of S$13.24, up 1% from the S$13.13 seen a year ago.

Operational highlights

For the reporting quarter, Total Weighted New Sales (TWNS) climbed 9% to S$222.9 million, propelled by higher sales in both Singapore and Malaysia.

Meanwhile, New Business Embedded Value (NBEV), a measure of long-term economic profitability, remained largely unchanged at S$84.7 million when compared to the selfsame figure of S$84.4 million a year ago. Meanwhile, there was also a shift in the channel mix which affected the insurer’s NBEV margin. All told, Great Eastern ended the quarter with a NBEV margin of 38.0%, down from the 41.3% seen a year ago.

Great Eastern’s chief executive Khor Hock Seng gave some insights on the significantly lower profit as compared to the previous year and had the following comments on the insurer’s performance:

“2016 started with strong sales growth in both Singapore and Malaysia. This was achieved through continued efforts to harness synergies with our parent bank and bancassurance partner, OCBC Bank, as well as a dedicated focus on improving the productivity of our sales force.

As for profit, the volatility in the global financial markets during the quarter impacted the valuation of our assets, resulting in a lower profit attributable to shareholders. Notwithstanding this, our investment portfolio remains sound and our capital position also remains strong.”

At Great Eastern’s closing price of S$22.19 yesterday, the insurer has a price-to-book ratio of 1.68.

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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.