Business

Brokers' take

Compiled by Lynette Khoo

OCBC | BUY

TARGET PRICE: $12.80
SEPT 20 CLOSE: $11.01

DBS Group Research, Sept 20

Great Eastern Holdings (GE) is exploring to "sell" its Malaysian operations, based on a report.

It was reported in The Edge that GE is said to have engaged at least one Malaysian bank to explore selling its stake in its Malaysian operations for as much as US$1 billion.

We gather from press reports that Bank Negara Malaysia is said to be considering strictly enforcing the 70 per cent foreign ownership cap on insurers.

We understand that the timeline could be fluid and negotiations could be managed on a case-by-case basis.

Our analysis shows that foreign insurers in Malaysia caught in this current conundrum are AIA, AIG, Chubb, GEH, Tokio Marine and Zurich Insurance.

At the moment, these entities are wholly owned by their respective parent companies.

There are three viable options to pare down their stakes: list 30 per cent of their shares to the public; joint venture with a local partner; or divest to local institutional investors.

On average, GE contributes about 15 per cent to OCBC's pre-tax group earnings. OCBC holds 87.75 per cent of GE.

Based on Great Eastern Malaysia's (GEM) 2016 annual report, we estimate that GEM contributed about 40 per cent to GEH's pre-tax profit last year, which from OCBC's standpoint, works out to 6 per cent of its group pre-tax profit.

SINGAPORE TELCOS | NEGATIVE

Maybank Kim Eng, Sept 19

With the iPhone 8 and X models set to be released, the three Singapore incumbent telcos have unveiled subsidised handset pricing plans.

The iPhone 8 plans carry similar handset pricing as the prelaunch iPhone 7 plans, while the iPhone X plans have a larger discount ($40 to $144 a unit).

Combined with recent higher data allocation and unlimited data plans that carry higher average revenue per user commitments for SingTel and StarHub, they are not yet being very aggressive in retention efforts.

This is logical, given that early adopter demand may constrict available supply in the near term. M1 has yet to release iPhone X pricing plans, but its SIM only data plans are currently the most aggressive.

After the initial wave of early adopter demand fades and as TPG Telecom's full mobility service or MyRepublic's mobile virtual network operator launches draw closer, we believe the pressure to recontract subscribers will increase and so will subsidies.

Also, what we cannot see from published rates are the offers that will come to corporate individual schemes, where the deals are sweetened but are still subject to the maximum two-year retail contract limit.

If iPhone demand is such that a supply bottleneck keeps subsidies per unit at bay this would be an upside risk to our near-term forecasts.

But the medium-term prospects of accelerating the recontracting process going into FY18 remain, in our view.

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