Great Eastern

Great Eastern: The on-going takeover tussle for APB and F&N is nearing an end following the vote by F&N sh/h on the sale of APB. DMG notes, among the potential beneficiaries of the whole saga is Great Eastern, which sold its stakes in F&N and APB to Thai Bev/Kindest Place back in July, reaping total sales proceeds of $2.4b. Says, given the low historical cost of these legacy shares, GEH will realize a total pre-tax gain of ~$2.2b. While most of the gains will accrue to GEH’s insurance funds, GEH itself will realise a net gain of $421m ($0.89/sh) for its sh/h. Taking into account new business embedded value created in 1H12 and the net gain from the sale of shares, the house estimates this will lift GEH’s embedded value to well over $8bn, or $17/sh. DMG notes despite the recent ~15% gain in GEH share price since the saga first broke out, the stock remains under-rated given a Price/Embedded Value (P/EV) of 0.9x. Arising from the gain from the sale of its F&N/APB shares, GEH could dish out a special dividend to shareholders as it remains well capitalised with capital adequacy ratios at over 200%, well in excess of the 120-130% regulatory requirements. Says, another potential catalyst is a possible third privatisation attempt by OCBC to buy out the remaining 13% of minority shareholders. The previous two attempts, in 2004 and 2006, had lifted OCBC’s stake in the insurer from 49% to the current 87% at P/EV ratios of 1.2-1.5x. On a P/EV multiple of 1.3x, GEH would be valued at $22/sh. DMG rates at Trading Buy. GEH is +1.2% at $15.40.