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

Great Eastern Holding Limited  (SGX: G07) announced its fiscal fourth quarter earnings on Friday morning (the company’s fiscal year coincides with the calendar year). The reporting period was for 1 October 2014 to 31 December 2014.

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

Financial highlights

Here’s a rundown on the financial figures for Great Eastern’s latest earnings release:

1. Gross premiums collected (the revenue of the company) for the quarter was up 6% on a year-on-year comparison, coming in at $2.3 billion. For the whole of 2014, revenue came in at $8.2 billion up 3% compared to 2013.
2. For the quarter, profit attributable to shareholders rose by 25% to $207.8 million. For 2014, profit came in at $888 million or up 30% compared to a year ago.
3. Earnings per share (EPS) was up 26% from 35 cents in the fourth quarter last year to 44 cents in the reporting quarter. The insurer made $1.86 in EPS for 2014, up 30% from 2013.
4. As of 31 December 2014, the company had $3.25 billion in cash and equivalents and borrowings of $440.6 million.

For the fourth quarter of 2014, the insurer’s net asset value per share came in at $12.41, a 16% increase from a year ago. Overall, it looks like a positive year for Great Eastern.

Operational highlights

For the fourth quarter of 2014, profit from life assurance was up 16% to $190.1 million while profit from general assurance followed suit with a 76% rise to $13.4 million. As a whole, quarterly profit from the insurance business was up 18% to $203.5 million. As you can see, the gain in life assurance accounted for much of the profit growth in the insurance business on an absolute basis.

To gain more insight on this profit increase in Great Easterns insurance operations, 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 for the quarter rose by 15% to $155.5 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, shot up by 67% to $14.1 million. The changes in fair value of assets may be volatile from quarter to quarter. As such, we may want to look at the longer term track record of the company instead of putting too much weight on quarterly fair value adjustments .

Weighted new sales was $296.3 million for the quarter, a decrease of 3% compared to the fourth quarter last year. Weighted new sales in Singapore saw an 8% drop from a year ago to $161.9 million. According to the insurer, Singapore suffered from a tougher comparable with 2013 which included the group’s centennial celebrations. The drop in weighted new sales in Singapore was offset by 11.9% rise in sales coming out of Malaysia.

Acting Group CEO, Mr. Norman Ip had this comment to make on the current quarter:  

“The Group has achieved a strong set of results for 2014 compared with 2013. In addition to growth in operating profit, the strong performance was due to significant unrealised mark-to-market gains from the valuation of assets and liabilities as global financial markets performed better in 2014 compared with more volatile market conditions in 2013.

Looking ahead, the Group will continue to invest in expertise, systems and processes to position ourselves to compete more effectively in an increasingly dynamic operating environment with new regulatory developments, and continued uncertainties over global financial market conditions.”

Foolish summary

At Friday’s closing price of $24.40, Great Eastern is priced at just under two times its latest book value and has a trailing twelve months dividend yield of 2.3%.

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