OCBC share price in Great Eastern windfall!

Lifetime MembershipBeing the oldest insurance company in Singapore and Malaysia, Great Eastern needs no introduction. The holding company of Great Eastern is none other than OCBC, which holds 88.4% stake in the insurer. Despite the relationship between the two entities, OCBC share price and Great Eastern share price took on different trajectories in recent years.

Prior to the pandemic, the oil slump of 2016 impacted all three local banks. As a result, OCBC share price peaked in 2018, falling from a record high of $13.75 in April 2018 to a low of $8.35 during the global market crash in March 2020. Subsequently, the recovery from pandemic and aggressive interest rate hikes by US Federal Reserve led to the return of the form of OCBC share price. As at 7 September 2023, OCBC share price was trading at $12.60.

OCBC share price

On the other hand, Great Eastern share price has declined considerably for the past five years, falling from $31 in May 2018 to the current $18.20 (as of 7 September 2023). In June 2023, Great Eastern share price collapsed to a 5-year low of $16.90, which was even lower than the $17.30 mark seen in March 2020. The meltdown of Great Eastern share price since 2018 could be attributed to the insurer having to contribute a whopping RM2.0 billion to the B40 National Protection Scheme in lieu of complying with the 70% foreign ownership requirement imposed on its subsidiary, Great Eastern Life Assurance (Malaysia) Berhad.

In 2021, Great Eastern clarified that the actual sum paid to the Malaysian government was RM2.37 billion. Amazingly, the insurer had paid the full sum by December 2021. Prior to this, Great Eastern was awarded the contract in 2019 to be the administrator for mySalam scheme, the government’s Takaful scheme to help low-income earners.

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Although the B40 contribution and mySalam scheme may seem like two separate matters altogether, in my opinion, they are actually related. And for good reasons too. My view is that Great Eastern readily “paid” the Malaysian government the operator fee to administer the mySalam scheme. Thus far, I am not aware of any other insurers that contributed to the B40 scheme except for Great Eastern. In return for paying the RM2.37 billion, it was purported by several news outlet that Great Eastern was paid by Malaysian government the insurance premiums of RM400 million annually for five years. This is not a small sum of money to be scoffed at. Given that mySalam began operations in 2019, Great Eastern should break-even its initial outlay either by end of this year or 2024.

Due to the fact that insurance business model is very “sticky”, I am quite confident that the Malaysian government would renew Great Eastern’s mySalam scheme for another five years. An example would be Great Eastern’s Dependent Protection Scheme for Singapore’s CPF members since 2005. Henceforth, the money should start rolling in for Great Eastern either by 2024 or 2025.BullionStarNote that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. I am not vested OCBC or Great Eastern shares at the moment. Whether OCBC share price or Great Eastern share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

OCBC share price looks to Great Eastern

In recent years, OCBC share price was seen as being laggard due to the lack of acquisitions by OCBC while DBS and UOB had both acquired Citigroup’s assets in Taiwan and ASEAN respectively. However, OCBC share price bottomed on 7 July 2023 following its shareholding increase in Great Eastern to 88.4%. And then in late July 2023, there were media reports that Great Eastern was in preliminary talks to acquire AmMetLife Insurance Berhad, a small Malaysian insurer.

AmMetLife will not be a gamechanger for Great Eastern nor OCBC Group as its FY2022 and FY2023 profit tax amounted to just RM76.1 million and RM65.8 million. Instead, the impetus for the acquisition should be to [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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