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In a Monday report, analyst Ng Li Hiang says the one-off gains GEH’s stake sale in both its life and general insurance businesses may raise OCBC’s FY18E profit by 6-20%, while its fully-loaded CET1 may improve by 18-45bps – in line with recent Malaysian insurers’ deals which were valued at about 4.3 times price-to-book on average.
“Should proceeds from the sale be reinvested into other opportunities, and reducing 30% minority interests (MI) to earnings from GEH’s Malaysian business, there will be limited near-term impact to OCBC’s earnings,” says Ng.
However, he highlights potential negative implications for the bank in the long-term, as higher MI also implies a potential reduction in profits in GEH’s Malaysian business.
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The analyst explains that this is because GEH is a dominant player in Malaysia with a 23% market share in life insurance by net premiums, which puts the company in a favourable position for further growth momentum in what an “underpenetrated market for insurance”.
“GEH’s new business embedded value (NBEV) margin for Malaysia was higher at 45% on average from FY10-16, versus the group’s/Singapore’s 42%,” says Ng.
“Complying with BNM rule means GEH has to share at least 30% of their profits from Malaysian business and/or pay dividends to minority shareholders in future. Furthermore, it is possible that the stake sale could be higher than 30%. These may have negative implications to OCBC,” he concludes.
As at 2.52pm, shares in OCBC are trading 1 cent lower at $11.15 or 1.1 time FY18 forward book value.
