Great Eastern Holdings' S$263m profit boosts OCBC's books

It was up 65% y-o-y supported by growth in underwriting profit, the result of successful shift in product mix over the past quarters.

Here's more from DMG Research:

GEH reported 1Q12 net profit of S$263m, up 65% YoY. Net profit was supported by growth in underwriting profit, the result of successful shift in product mix over the past quarters. There was an increase in investment income and mark-to-market gains from the recovery of global financial markets. As insurance accounts for ~9% of OCBC’s total income, the strong GEH results is a positive for OCBC. We are forecasting OCBC FY12 net profit of S$2.26b, of which S$610m could be recorded in 1Q12. Given the slower loan growth environment, we remain NEUTRAL on OCBC, with our S$8.30 target price pegged to 1.3x 2012 book, a discount to the historical average of 1.54x.

GEH’s non-participating fund did well. GEH’s non-participating fund recorded life assurance profit of S$160m, up 74% or S$68m YoY, and is the main driver for the overall net profit surge. Favourable credit and equity markets led to mark-to-market gains in asset valuations. Investment profit, which is a component of profit from insurance operations, therefore rose sharply.

GEH’s profit from investments in shareholders’ funds rose 170% or S$44m YoY to S$69m. Mark-to-market gains in held-for-trading investments was the main cause for the surge.

OCBC’s provisions expected to stay high in 2012. When OCBC reported its 4Q11 results, it announced that it has done a comprehensive portfolio review in anticipation of a 2012 economic slowdown. This led to 4Q11 provisions doubling QoQ. We expect all the three banks’ provisions to be high in 2012, and this includes OCBC. OCBC’s general provisioning to loan ratio of 0.9% is also lower than peers, which suggests less scope for provisions to decrease from the 4Q11 level.