Great Eastern Holding

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Great Eastern Holdings Limited will be announcing its full year results on Tuesday, 16 February 2016 before the trading market opens.

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Great Eastern Announces Sale of Its Vietnam Business

Great Eastern Holdings today announced the sale of its Vietnam business to FWD Life Insurance Company (Bermuda) ) Limited for S$48.2 million. All relevant regulatory approvals or, as the case may be, in principle approval, for the divestment have been obtained. The divestment will be completed on or about 21 June 2016.

FWD Life Insurance Company (Bermuda) Limited is part of FWD Group, the insurance business arm of Asia-based investment group, Pacific Century Group.
...

http://infopub.sgx.com/FileOpen/PressRel...eID=408058

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Some 300 GE agents were offered $100m to join rival AIA firm

by Lorna Tan
September 11, 2017, 10:22 AM SGT

SINGAPORE - New kid on the block AIA Financial Advisers (AIA FA) is on a hiring spree for agents, with Great Eastern (GE) the latest casualty in the ongoing poaching battle among insurers. Sources said the buyout offer from AIA FA for GE's 300 plus agents - who operate under the so-called Advisors Alliance Group (AA) - amounted to S$100 million.

It is believed that AA's founder and GE's senior executive director, Mr Tan Koon Chuan, is himself leaving GE for AIA FA. An insurance veteran, he joined GE 40 years ago in July 1977.

Last month, Mr Tan shared details of the buyout offer from AIA FA with his 400 agents. It comes with upfront cash bonuses and a five-year "bond" period where the monetary incentives could be clawed back if their sales quotas were not met. It is believed that more than 300 GE agents have decided to cross over to AIA FA while some declined.

More details in http://www.straitstimes.com/business/ban...ay-sources

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Great Eastern Holdings Limited  announced that it is assessing possible options relating to a minority stake in GreatEastern Life Assurance (Malaysia) Berhad to comply with the prevailing foreign ownership requirements applicable to insurance companies in Malaysia. The assessment is preliminary at this stage and shareholders are advised that there is no certainty that any agreement will be entered into.

[gzbkel]

I notice that GE is currently trading at around 0.6x of current embedded value.
For reference, it has traded between 0.8x to 1.2x in the years between 2011 and 2019.

In 2020, its profit after tax has dropped slightly by 4%. Over the past 5 years, profit fluctuated while embedded value per share has grown steadily. There has been no loss-making year for past 10 years, including GFC.

2020 (and 2021) is the year of covid, but covid should not have any big direct impacts on GE.
Most of its business is in life insurance, with the bulk of PAT from Singapore and Malaysia.
Both countries did not experience significant rise in death rates during covid.

I am not sure what is the reason for the current significant discount to embedded value.
As someone new to insurance businesses, I have only two guesses:
- The market is pricing in disruption from new fintech insurance companies
- Significant portion of assets is in fixed income, and if interest rates rise this portion of the assets will fall in value

Anyone have a better insight on the reason for the discount now?

[mslee888]

i guess the simple reason is ocbc already holding close to 88%. Its a very low liquidity stock, if ocbc doesnt mount a takeover, you will simply just going to hold it and be satisfied with 2.xx% yield. Unlikely to see any unlocking of shareholder value.

[gzbkel]

i guess the simple reason is ocbc already holding close to 88%. Its a very low liquidity stock, if ocbc doesnt mount a takeover, you will simply just going to hold it and be satisfied with 2.xx% yield. Unlikely to see any unlocking of shareholder value.

In 2008, OCBC owns 85%, so there is no big change in the shareholding structure for more than 10 years.
However, current price is 0.6x of embedded value, compared to 0.8x to 1.2x in the years between 2011 and 2019.
That would suggest that there is some other reason other than shareholding (which is of course a valid reason)

[donmihaihai]

chances of unlocking shareholder value is close to zero, which mean return is only through dividends.

provided figures plus share price say otherwise

2011 - 2019 & Current.

0.8X to 1.2 X embedded value. 0.6X current

share price $12.50 to $31.00. Current $22.60

If I was lucky enough to buy at the lowest $12.50, my gain is decent enough at 80% using current share price despite the drop of 25% in valuation (0.8X to 0.6X)

If I was unlucky to buy at $31.00, my lost will be 27% using current share price which the drop in valuation is 50%(1.2X to 0.6X)

I assume any smart investor, with an eye on valuation will certainly want to take a 2nd look in Great Eastern because of the drop in valuation. Writing like dydx.

The drop in valuation is not unique to Great Eastern alone, I see the same thing in great number of SGX listed co. for the last 10 years or so. It is very positive for investor after years of compression in valuation.

[edragon]

i guess the simple reason is ocbc already holding close to 88%. Its a very low liquidity stock, if ocbc doesnt mount a takeover, you will simply just going to hold it and be satisfied with 2.xx% yield. Unlikely to see any unlocking of shareholder value.

Life insurance premiums are often invested substantially in fixed-income instruments which in the current low-rate environment do not offer sufficient yield to be shared with their customers which is true to almost all those seeking investment capital. Retirees or those near 65 is better off getting average yield of 4% from CPF than insurance Companies.

[ghchua]

I am not sure what is the reason for the current significant discount to embedded value.
As someone new to insurance businesses, I have only two guesses:
- The market is pricing in disruption from new fintech insurance companies
- Significant portion of assets is in fixed income, and if interest rates rise this portion of the assets will fall in value

Anyone have a better insight on the reason for the discount now?

Hi gzbkel,

It is indeed puzzling why GE's share price did not track its increase in embedded value for the past few years. Maybe I could offer my 2 cents here:

1. The consistent increase in embedded value throughout these past few years did not correspond to an equally consistent increase in other measurements on the company. These includes ROE, Gross Premium growth etc.

2. Dividend payout had been flat, despite increase in embedded value for the past few years.

3. NAV increase also didn't quite track embedded value increase that closely, although it is better than its market price.

4. Market volatility due to Covid. Investors might be pricing in more inconsistent investment return going forward, thereby affecting GE shareholder fund return. Since risk is now assumed to be higher, the risk-adjusted discount rate used for computing the non life business adjusted shareholder fund embedded value might have to be adjusted going forward.