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

Great Eastern Holding Limited (SGX: G07) announced its second-quarter earnings this morning. The reporting period was for 1 April 2016 to 30 June 2016.

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

You can catch the results of Great Eastern’s previous quarter here.

Financial highlights

The following’s a quick rundown on some of the latest financial figures for Great Eastern:

  • Quarterly gross premiums collected (the revenue of the company) for Great Eastern was up 25% year-on-year, ending at $2.28 billion.
  • Profit attributable to shareholders for the quarter, though, fell by 63% to $102.2 million.
  • Consequently, earnings per share (EPS) was down 63% from 58 cents in the second-quarter of 2015 to 22 cents in the reporting quarter.
  • As of 30 June 2016, Great Eastern had $4.2 billion in cash and equivalents and borrowings of nearly $400 million.The insurer ended the reporting quarter with a net asset value per share of $13.08, a slight 0.6% increase from the $13.00 seen a year ago.

In all, revenue rose sharply for the quarter, but Great Eastern posted a sharp decline in profit. The fall in profit was due to tough comparables with the second quarter of 2015, which included a $119.9 million gain from Great Eastern’s sale of New China Life Insurance Company. Great Eastern also posted an $18.7 million loss in the reporting quarter because of the disposal of its Vietnam subsidiary.

Despite the lower profit, Great Eastern has kept its interim dividend for 2016 at $0.10 per share, unchanged from 2015.

Operational highlights and the road ahead

For the second-quarter of 2016, profit from life assurance fell 18% to $107.8 million. Although profit from general insurance was up 22% year-on-year, it came in at just $8.4 million. As a result, profit from the insurance business (sum of profit from life assurance and profit from general insurance) was down 16% to $116.2 million.

To gain more insight on Great Eastern’s overall profit decline, 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 was up 1.8% year-on-year to $134.6 million.

The non-operating profit segment, which comprises of changes in fair value of assets and liabilities, was in negative territory with a loss of $36.1 million. This was a wider loss compared to a year ago when Great Eastern recorded $8.8 million in non-operating losses.

We should note that the changes in the fair value of assets may be volatile from quarter to quarter (these assets are mainly financial assets and their prices may be volatile over the short-term). As such, we may want to 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 $245.7 million for the reporting quarter, a 23% increase compared to the second quarter last year. Weighted new sales in Singapore saw a gain of 30.5% from a year ago to $157.1 million. Weighted new sales in Malaysia was up 20.5% year-on-year to $84.7 million.

Great Eastern’s chief executive Khor Hock Seng had some comments for the reporting quarter in the earnings release:

“Our Group’s key operating metrics such as total weighted new sales and NBEV have shown significant growth compared with the same period last year. Our positive Q2-16 performance is a direct result of building upon, and even surpassing, our Q1-16’s sales momentum for our major markets, Singapore and Malaysia.

While we maintain our focus to grow our core markets, we will increase efforts to build our business in Indonesia.”

He also touched on his views about Great Eastern’s long-term potential, saying:

“I am confident that the Group will be able to ride through the global macroeconomic uncertainty with our strong fundamentals and robust financial position. The Group remains positive on the long term prospects of the insurance business in Southeast Asia and will continue to implement initiatives to support our distribution partners and improve customer experience.”

At Wednesday’s opening price of $21.83, Great Eastern is priced under 1.7 times its book value and has a trailing dividend yield of 2.5%.

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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.