Prudential - AIA - Great Eastern

Insurance is not a widely covered industry but we all know its big, very big. AIG was planning to hive off AIA (AIG's Asian operations) in a possible listing but Prudential surprised everyone by buying it outright, what a coup for them. Prudential bought AIA for a staggering sum of $35.5bn. It will fund it by raising $21bn via a rights issue. Prudential is already asking around the sovereign wealth funds of Malaysia, China and Singapore to take up smaller chunks of the enlarged entity - which I am sure many will. Later on, Prudential-AIA will be seeking a listing in HKSE, probably 4Q2010 or 1Q2011.



This will change the insurance industry landscape in Asia, in particular Singapore and Malaysia. Great Eastern used to have the area as their base and was building their reach across Asia, but now their home turfs are being attacked and their market share will be under threat across Asia.

Malaysia and Singapore are the core markets for Great Eastern, but Prudential-AIA will leapfrog over them in almost every metric - new premiums, assets, agents and products. The enlarged entity will have about 26% and 32% of the markets in Malaysia and Singapore respectively. It doesn't stop there, Prudential-AIA will now have market shares of 45% in Vietnam, 29% in China, 18% in Indonesia, 30% in the Philippines, 29% in Thailand, 24% in HK and 14% in India. What is spectacular with that platform is that each and every markets I have listed are strong growth markets for the insurance industry - which is why Prudential has pulled a great one, in particular if they can merge the operations and streamline everything without losing too many staff.

Great Eastern is a lot like old money, although its listed its free float is pathetic with OCBC holding 87% of the company. That shows how conservative they were. Remember one of the strong traits of an excellent CEO - "not standing still", you stayed put, you will get steamrolled sooner or later. Now Great Eastern will be on the backfoot trying to do "crisis management" and use defensive tactics. All that because for too long they have not been proactive enough, just sitting by and relying on pure organic growth - yeah, soon your company will be organic feed.

Why the need to hold 87%, come on??? There is a lot of deep value in Great Eastern as a stock. Many funds have shunned holding the stock because of the abysmal liquidity. They are now shocked out of their deep slumber, which should be a great time to buy the stock. Great Eastern trades at around S$14.20, just 1.2x the embedded value of S$12.22. Take AXA Pacific, it trades at 1.7x, and Prudential bought AIA for 1.69x. Conservative long term investors looking for great values to be unlocked should start buying and holding Great Eastern NOW!!! Nothing much will happen to the stock unless it has catalysts - and catalysts are being forced upon Great Eastern to act, its a once in a lifetime thing when you talk about these kind of stocks.

Embedded value is the present value of a company's insurance policies plus NAV, in case you were wondering. Great Eastern Holdings's recent share price is S$14.26. But buyers need to be in for the long haul because their shares traded per day ranges from 10,000 to 50,000 only.

Heck, the China insurance firms such as Ping An and China Life at trading nearly 3x their embedded value - let's face it, Great Eastern is on par or better run than all the firms I have just mentioned. Strong comfort level to get in now.

Great Eastern Holdings provides various insurance products and services through its subsidiaries Great Eastern Life Assurance and Overseas Assurance Corporation (OAC). The company offers life insurance, long-term health and accident insurance, annuity business written, and unit-linked insurance; and cover for risks associated with property and casualty related business.The company primarily operates in Singapore, Malaysia, China, Indonesia and Brunei. It is headquartered in Singapore City, Singapore.

The company recorded net profits of S$272.4m (eps 0.58) for year ended December 2008, and is likely to post a net profit of S$440m (eps 0.94) for year ended Dec 2009. Expect Great Eastern to start a more active mandate on M&A and joint ventures in the near future to protect their turf.

The company has 24 branches in Malaysia along with branches in Brunei, Indonesia, Hanoi, Shanghai, Ho Chi Minh City and Beijing. The company has tied agency force of 2,500 life planners in Singapore and 17,000 tied agents in Malaysia. OAC is the composite insurer in Singapore handling both life and general insurance. OAC distributes a wide range of commercial and personalized general insurance products through brokers, agents, bancassurance and direct channels.The company's bancassurance business is conducted through, and underwritten by, OAC.

The company also has subsidiaries operating in various areas of the financial service sector. Alpha Financial Advisers (Alpha) offers financial advisory services under a financial adviser’s license from the Monetary Authority of Singapore. With the existing distribution channels, tied agency and bancassurance, Alpha provides financial advisory services. The financial solutions are delivered by using proprietary financial advisory process and financial planning software system for the multiproduct- multi-manufacturer framework.

Lion Global Investors is one of the largest asset management companies in Southeast Asia. It is 70% owned by Great Eastern and 30% by OCBC Bank. Lion Global Investors offers a suite of investment products covering all asset classes to statutory boards, educational institutions, public and private companies, charities, non-profit organizations and retail investors.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

p/s photos: Liyana Jasmay