How Did Great Eastern Holding Limited Perform in the First Half of 2018?
Great Eastern Holding Limited (SGX: G07) has a marvellous track record of growth. Between 2013 to 2017, the company’s gross premiums collected have grown at 9.4% annually. At the same time, the group has maintained profitability in its underwriting business throughout. With interest rates set to rise, I am expecting growth in its investment income for the next couple of years.
Due to the tailwinds for the business, I kept a close watch on Great Eastern’s latest earnings. Here are some of the key takeaways from its earnings update for the first half of 2018.
In the first half of the year, gross premiums collected rose 11% to S$5.7 billion. Total weighted new sales, which measures new regular premium collected for the period, grew 4%. The amount of claims was 18% higher at S$3.0 billion, and commission expense was 15% higher. Overall operating profit from its insurance business was up 12% to S$312.3 million for the six-month period.
This gives it a combined ratio of 0.95. Management cited improvement in the life insurance segment as a key driver of the growth in its operational insurance segment.
Insurance companies typically earn some profits through investment of the “float”. The float is the money collected from premiums that have not been paid out as claims as yet. The group reported a 32% decrease in profit from shareholders’ funds in the second half of 2018, largely due to lower realised gain on sale of investments in the first quarter of 2018. However, in the second quarter, profit from shareholders’ funds improved 40% year-on-year.
Overall, group profit attributable to shareholders rose 21% for the six-month period as compared to the same time frame last year. The table below illustrates some of the major numbers from the reporting period:
Source: Great Eastern Holding Limited 1H2018 earnings press release
The group has a healthy financial position, maintaining capital adequacy ratios for its insurance business well above minimum regulatory requirements. It has around S$944 million in debt and S$3.2 billion in cash. As of 30 June 2018, the group had a net asset value per share of S$15.36.
The board declared an interim dividend of 10 cents per share, which was paid on 31 August.
Going forward, group chief executive, Khor Hock Seng, said:
“Our priority remains on delivering the right solutions to meet the needs of our customers, leveraging on our comprehensive suite of products and strong distribution capabilities, while continuing to push forward our digitalisation transformation to better serve our customers and distribution channels.”
At its share price of S$27.30, Great Eastern has a price-to-earnings multiple of 10.5, dividend yield of 2.5%, and a price-to-book value of 1.77.