OCBC's bid for Great Eastern Life to boost sector valuations

OCBC has been a shareholder in Great Eastern Life since 1958.

The bid for Great Eastern Life by Oversea-Chinese Banking Corporation (OCBC) is expected to positively impact the valuation of its peers, Prudential and AIA, in the Asian Life Insurance market. 

The bid, which values Great Eastern Life at 0.70x FY 2023F P/EV (a 37% increase from 0.51x), suggests that listed Asian Life Insurance peers should see a valuation boost, a Jefferies Equity Research note said.

Prudential currently trades at 0.56x P/EV, and AIA at 1.35x P/EV. Both Prudential and AIA are gaining market share from Great Eastern Life, particularly in Malaysia and Singapore, and are less sensitive to financial market risks.

The OCBC bid values Great Eastern Life at 0.70x P/EV, 1.54x P/B, and 15.6x P/E, based on FY 2023 numbers. 

This valuation narrows the gap with Prudential's 0.56x P/EV and is closer to AIA's 1.35x P/EV. Both Prudential and AIA have significant market shares in Malaysia and Singapore. 

Prudential has 6.3% of its group annual premium equivalent (APE) in Malaysia and 13.1% in Singapore. AIA has 6.7% of its group annual new premiums (ANP) in Malaysia and 6.6% in Singapore.

OCBC has been a shareholder in Great Eastern Life since 1958 and is its largest bancassurance partner. 

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The offer is for S$25.60 per share, a 36.9% premium to the last traded price, equating to S$1.4b (approximately US$1.0b) for the 11.56% minority stake OCBC does not already own. 

Existing shareholders will still receive the FY 2023 tax-exempt dividend of 40 cents per share. The bid increases Great Eastern Life's valuation from 0.51x P/EV to 0.70x, 1.12x P/B to 1.54x, and 11.4x P/E to 15.6x P/E.

The rationale behind OCBC's bid aligns with its strategy to focus on four growth pillars, including capturing regional wealth flows. 

Full ownership of Great Eastern Life, which already contributes 15% of OCBC's earnings, would be accretive to profits due to existing substantial synergies. 

This move is part of OCBC’s long-term strategy, with previous stake increases in 2004 and 2006.

Sam Wong, a Singaporean banks analyst, noted that the deal aims to solidify OCBC's wealth position and capture rising Asian wealth with a "One Group" approach. 

The acquisition is expected to add 0.2 percentage points to OCBC's group ROE and reduce its CET1 ratio by 0.6 percentage points, potentially limiting short-term capital returns.