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

Great Eastern Holding Limited (SGX: G07) announced its results for the quarter and year ended 31 December 2016 this morning.

As a quick background, Great Eastern is one of the oldest insurance establishments in Singapore. It is also a majority-owned subsidiary of  Oversea-Chinese Banking Corp Limited (SGX: O39). Great Eastern provides mainly life assurance products and general insurance products. You can catch the results from the insurer’s previous quarter here.

Financial highlights

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

  1. For the fourth quarter, gross premiums collected (the revenue of the company) was up 6% year-on-year to $2.68 billion. For the full year, revenue came in at $9.56 billion, up 9% compared to 2015.
  2. For the quarter, profit attributable to shareholders fell 11% to $195.2 million. For 2016, profit came in at $589.3 million, or down 25% compared to 2015.
  3. Great Eastern’s earnings per share (EPS) was down 9% from 46 cents in the fourth quarter of 2015 to 42 cents in the reporting quarter. The insurer made $1.25 in EPS for 2016, down 25% from 2015.
  4. As of 31 December 2014, the company had $3.25 billion in cash and equivalents and borrowings of $399.6 million. Great Eastern also ended 2016 with a net asset value per share of $13.92, representing a 6% increase from 2015.

The board of directors recommended a final dividend of $0.40 per share. This brings the full year dividend to $0.50 per share, a decline from the dividend of $0.55 per share seen in 2015 (note: 2015 included a special dividend of $0.05 per share.)

Operational highlights and a future outlook

For 2016’s fourth quarter, profit from life assurance was down 39% to $143.7 million. Profit from general insurance, meanwhile, was up 44% to $4.6 million. As a whole, profit from the insurance business was down 38% to $148.3 million.

To gain more insight on this profit increase, we can look at the profit as having 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 33% to $112.5 million in the fourth quarter.

Non-operating profit, which mainly comprises of changes in fair value of assets and liabilities, sank by 74% to $12.7 million. The changes in fair value of assets may be volatile from quarter to quarter. As such, we should look at the longer term record of the company instead of putting too much weight on quarterly fair value adjustments.

Weighted new sales was $343.5 million for the reporting quarter, an increase of 13% compared to the fourth quarter of 2015.

Great Eastern’s chief executive officer, Khor Hock Seng, commented on the performance of his company in the current quarter:

“We continued to deliver a strong set of new business results in 2016, with the Group’s Total Weighted New Sales surpassing $1 billion with a growth of 11% and ew Business Embedded Value growing by 22%.

Central to this is the strength and depth of our multi-channel distribution capabilities, driven by our high quality agency and synergistic bancassurance partnership with OCBC Bank. The results are also testament to the disciplined execution of our strategy to further grow our business in our core markets of Singapore and Malaysia, while we continue to build our operations in Indonesia and our Takaful business in Malaysia.”

Khor also shared some thoughts on the insurer’s outlook:

“Moving ahead, we will continue to strengthen our business model, prudently manage costs and improve operational efficiencies. We will continue to look at innovative ways to enhance our service level and enrich customer experience through digitalisation and analytics. The fundamentals underpinning our business remain strong and we are confident of the Group’s growth prospects in the region.”

At last Friday’s closing share price of $20.90, Great Eastern is priced at 1.5 times its 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 does not owns shares in any companies mentioned.