Why Great Eastern Holdings Ltd Is A Stock Worth Looking At

GFounded in 1908, Great Eastern Holdings Ltd (GEH) is a leading listed insurer in Singapore and Malaysia. It offers both life and general insurance products to 4+ million policyholders through three main distribution channels: a robust agency force, bancassurance, and a financial advisory firm in both nations. Presently, it is valued at S$ 12.5 billion in market capitalisation as of 15 April 2019.

In this article, I’ll cover GEH’s latest financial results and valuation figures based on its current stock price of S$ 26.50 per share. Thus, here are 11 key things to know about GEH before you invest.

• Gross Written Premium (GWP)
  GEH had achieved CAGR of 11.0% in its GWP, growing to S$ 12.3 billion in 2018 from S$ 6.6 billion in 2012. It is attributable to premium growth from its key markets of Singapore and Malaysia.

Source: GEH’s Annual Reports

• Investment Income
  GEH has grown its investment income consistently from S$ 1.7 billion in 2012 to S$ 2.6 billion in 2018. This is attributed to continuous growth in GEH’s investment assets during the 6-year period. It has increased from S$ 46.8 billion in 2012 to S$ 71.5 billion in 2018.

Source: GEH’s Annual Reports

• Breakdown of GEH’s Investment Assets
  In 2018, GEH has S$ 71.5 billion in investment assets, which is 84.1% of GEH’s total assets of S$ 85.0 billion. The continuous increase in its total assets is mainly driven by GEH’s growth in investment assets during the 7-year period.
  
  From the figure of S$ 71.5 billion in 2018, ⅔ of GEH’s investment assets are made up of debt securities. The remaining ⅓ consists of investment made into both equity securities and collective investment schemes.
  
  Here, I’ll provide a breakdown of its investment assets:
  
  

No.	Types of Investment Assets	Amount (S$ Billion)	Amount (%)
1	Debt Securities	47.9	67.0%
2	Equity Securities	14.0	19.6%
3	Collective InvestmentSchemes	9.6	13.4%
Total Investment Assets	71.5	100.0%

Source: GEH’s Annual Report 2018

• Operating Profits After Tax (OPAT)
  Overall, GEH has achieved CAGR of 4.0% in OPAT, increasing to S$ 636.1 million in 2018 from S$ 501.5 million in 2012. It is attributable to GEH’s continuous growth in both insurance premiums and investment income during the 7-year period. GEH’s OPAT per share had grown from S$ 1.06 in 2012 to S$ 1.34 in 2018.
  
  GEH has 7-Year Return on Equity (ROE) Average of 9.29% per annum. It means, GEH has made, on average, S$ 9.29 in shareholders’ earnings a year from every S$ 100.00 in shareholders’ equity from 2012 to 2018.

Source: GEH’s Annual Reports

• Why Don’t I Use Shareholders’ Earnings?
  This is because the computation of shareholders’ earnings comprises of gains and losses from non-operating activities. They include a change in fair value and sales of GEH’s investment assets. They are gains or losses which are non-controllable as they are subjected to market conditions.
  
  Personally, as an investor, I would be interested to find out GEH’s actual business performance. Hence, I would refer to Operating PAT as a guide to its operating performance. With that said, I’ve plotted a graph of the insurer’s shareholders’ earnings. It is as follows:

Source: GEH’s Annual Reports

• Cash Flow Management
  From 2012 to 2018, GEH has generated S$ 16.1 billion in operating cash flows, S$ 3.7 billion in dividend and S$ 11.6 billion in interest income. It has spent:
  
  – S$ 26.5 billion in net purchases of investment assets.
  – S$ 1.8 billion in dividend payments to its shareholders.
  
  
  Overall, GEH has lifted its cash balance to S$ 5.7 billion in 2018 from S$ 4.2 billion in 2012. This means, GEH is a cash-cow and has the ability to continue expanding its investment portfolio to generate rising profits & reward its shareholders with sustainable dividends in the future.

Source: GEH’s Annual Reports

• Balance Sheet Strength
  GEH maintained its total liabilities-to-total assets ratio (gearing ratio) at around 90% – 91% over the last 7 years.
  
  In 2018, GEH has S$ 68.6 billion in insurance contract liabilities which is 88.5% of GEH’s total liabilities. The breakdown of its insurance contract liabilities are as followed:
  
  
  

No.	Types of Insurance Contract Liabilities	Amount (S$ Billion)	Amount (%)
1	Contracts with DPF	48.1	73.3%
2	Contracts without DPF	11.3	17.2%
3	Investment-Linked Contracts	6.2	9.5%
Total Insurance Contract Liabilities	65.6	100.0%

Source: GEH’s Annual Report 2018

Notes:
DPF refers to Discretionary Participating Features.


On 24 April 2018, the Standard & Poor’s (S&P) has reaffirmed its credit rating agency at ‘AA-’ and stable outlook in regards to insurer’s financial strength rating for The Great Eastern Life Assurance Co. Ltd and as well as Great Insurance General Insurance Ltd. It is currently one of the best among life insurance companies in Asia.

• Who Owns GEH?
  As of 1 March 2019, Overseas-Chinese Banking Corporation Limited, or OCBC, is the largest shareholder with 87.9% direct shareholdings in the insurer.
  
  
  
• P/E Ratio
  As of 15 April 2019, GEH is trading at S$ 26.50 a share. Thus, its current P/E Ratio is 19.71 based on its OPAT per share of S$ 1.344, above GEH’s 7-Year Average of 17.84.

• P/B Ratio
  In 2018, GEH has net assets of S$ 15.71 per share. Thus, it has a current P/B Ratio of 1.69, which is slightly above its 7-Year Average of 1.64.

• Dividend Yields
  In 2018, GEH has paid out S$ 0.60 in dividends per share (DPS), which is relatively stable as compared to DPS paid over the last 5 years. If GEH is able to maintain its DPS at S$ 0.60 in subsequent years, hence, it would have a dividend yield of 2.34% a year based on the stock price of S$ 26.50 a share presently.

Source: GEH’s Annual Reports

VIA’s Verdict

Overall, GEH has delivered higher GWP and OPAT to its shareholders. It enables GEH to pay out sustainable dividends to its existing shareholders. Thus, its stock price movements had been relatively stable. Its market capitalisation has grown from S$ 7.4 billion in 2012 to S$ 12.5 billion presently.

Source: Google Finance

In terms of valuation, it is trading at P/E & P/B ratios slightly above its average. GEH is offering 2.34% a year in dividend yields based on the current stock price of S$ 26.50. So, the question is: ‘Would you invest in GEH at S$ 26.50 today?’

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