Wolf Money(10 things you need to know about Great Eastern Holdings AGM held on the 25th April 2024)
10 things you need to know about Great Eastern Holdings AGM 2024.
First and foremost, I would like to thank the Chairman for his patience in answering shareholders’ questions. He is calm and respectful. He set a high bar for others to follow with his grace. I thank the management for taking time in answering my questions. My thank you also goes to Chin Woo for galvanising the minorities. The minorities have a competent leader. My apologies for my limited bandwidth if I miss out anything.
(Full capacity)
2.) The all important Lone Wolf AGM buffet rating….drum roll…. 5.5 out of 10. It was nothing special. Mapo Tofu could be less spicy.
2.) The high turnout didn’t surprise me. The recent shareholders’ activism led by Chin Woo has galvanised the minorities. The aim is to seek answers and remedies from the company to deal with the underperformance of its shareholders’ return.
(Wolf and Chin Woo)
3.) The chairman was first to speak, and it was followed by the CEO, Mr. Khor. Mr. Khor gave a quick overview of the financial year 2023. He mentioned the downtrend in single premium sales were due to the high risk free rate. He is optimistic of a rebound in sales of single premium products this year.
(Chairman patiently answering questions from shareholders)
4.) The questions were coming in thick and fast. A shareholder asked about the big under performance in GE vs AIA in Singapore. Management attributed it to the drop in single premium sales. A shareholder asked why GE products are not sold in HK to tap on mainland Chinese buying insurance products since OCBC has a presence in HK. Mr. Khor replied that they don’t have a HK license to conduct insurance sales to Chinese citizens. They believe in doing business the proper way in accordance to the law of that country.
5.) Mr. Smith, a shareholder, asked a spirited question about the reduction of the final dividend, which gathered a loud applause from the crowd. This was on the basis of a substantial increase in directors’ fees and better results. GE replied: they are introducing a progressive dividend model by paying an equal dividend for each half of the year on a sustainable basis. Base on 40c given for final dividend, next year dividends will be a minimum 80c, higher than the 75c this year.
6.) Chin Woo, the lead shareholder activist questioned the need to keep the excess capital to a tune of 1.5b which he had calculated. He called on the company to distribute the cash to shareholders. GEH CFO replied: The excess capital is needed for regulatory requirements. GEH had a different number compared to CW numbers. The mtn raised recently could be used to improve core capital, in return could improve shareholders’ returns.
7.) Question on the poor total shareholders return. GEH replied: They are talking more regularly with the market participants including analysts to create awareness about the company’s strong fundamentals, and hopefully, that can translate into higher share price. The Chairman ask for more patience while the board work out a plan to improve shareholders’ return.
8.)On the subject of directors’ fees, one shareholder proposed one third of directors’ fees to be paid in Great Eastern shares. GEH replied: the directors’ fee was last raised in 2011, therefore a big increase this year. They had delayed the increase due to covid. The number of meetings for b.o.d have also increased from 4 to 8, couple with the higher responsibility each director had to bear as the main reasons for the fee increased. Shares issued as part of directors’ fees are uncommon among listed companies in Singapore.
9.) The board addressed the concern raised by Chin Woo. The key issue surrounding the undervalued share price, which trades at a substantial discount to embedded value. GEH employed a consultant to explain what is embedded value. I will cut the long story short. EV calculations vary across different insurers and the share price shouldn’t be determined by embedded value alone. I was never convinced by the “look elsewhere” argument. I wonder what financial metrics the chair used to determine the value in GEH share which he concurred to be undervalued at the AGM?
1st resolution to withhold 30% of director fees and peg it to share price recovering to 0.8x embedded value. GEH board replied: based on Singapore Institute of Directors guidelines, compensation for directors should not be pegged to the share price or performance of the company. By doing so, it can caused short term mentality of the board at the detriment to long term shareholder’s value.
2nd resolution to replace OCBC with GEH share compensation. Board replied: Compensations were based on performance of GEH, not OCBC. The OCBC share incentives for key executives is to encourage the one OCBC mindset. I don’t think the explanation works for most minority shareholders. It does gave an impression the key executives are working for one shareholder only. They will consider an alternative compensation for key executives in the future.
3rd resolution to appointment of IFA to give suggestions on how to improve shareholders’ value. GEH replied: the board is looking at ways to improve shareholder value. The board will continue to find ways to reward shareholders within the board’s power. The increase in dividend in FY2023 was one such measure taken. The board is happy to have more suggestions from shareholders on ways to improve returns.
10.) My feedback: the crux of the whole saga was due to unfair distribution of profit. The management got a bump up in pay, directors got a huge bump up in directors’ fees, the parent company, OCBC, got an increase in profit due to GEH’s profit improvements but the poor minority shareholders have been experiencing poor returns over the last 10 years. The minorities felt they were not making their money worth investing in GEH. In my opinion, minority shareholders are practical people. If we had gotten a fair return from our investment in GEH through dividend and shareholders return, there wouldn’t be this current shareholders’ activism against the company.
I suggested a few ways which I had written on my blog previously to enhance shareholders’ return in GE.
A.) By selling GEH to a third party insurer which benefits OCBC too. The bank can collect distribution fees from the acquirer.
B.) Considering selling the condo and GCB, which I deem as non core, and returning cash to shareholders. I was told by a director, that condo and GCB are core assets to the insurer which always produce great return for shareholders. I respectfully disagreed. I consider property to be low return investment given the high borrowing and high risk free rate at this juncture. Anyway, everyone has their opinion on the subject. Borrowing at 3% with rental at 3.5% ain’t that great in my view. Buying insurers using the property money will have yield the company better return.
C.) Consider a listing for GE Malaysia since the Malaysian unit of GE is still on expansion mode to acquire other Malaysian insurers. Having a listco in Malaysia helps to facilitate capital raising.
D.) Partial distribution of 38.45% GEH shares to OCBC shareholders to increase liquidity. Poor liquidity was mentioned on multiple occasions as one of the main reasons for the poor share price performance. OCBC can retained majority control and liquidity could increase the attractiveness of GEH shares. Undertaking a partial distribution to OCBC shareholders is the middle ground solution.
E.) A fair privatisation offer by OCBC. The current ambiguity surrounding OCBC 88.45% holding of GEH is akin to a mountaineer climbing Mt. Everest within 2 steps away from the peak, deciding whether to continue the two steps climb to reach the pinnacle, instead of stand still, doing nothing. It is quite puzzling. A strong leadership is required at OCBC on the direction of GEH listing status.
My respectful final words for the OCBC Chairman and CEO who were in attendance. It might be better for OCBC and GEH to solve the grievances of the minorities at Great Eastern Holdings than to risk a shareholders’ revolt spreading to OCBC, given the bank has the highest tier 1 and the lowest return on equity among the three banks. OCBC’s own shareholders will be questioning the low return compared to the other local banks. I got a round of applause from all the shareholders attending the meeting.😇Overall, I like the way the AGM is conducted, everyone is respectful. I always believe one can get their views across on difficult issues without losing their mannerisms. I praise the high standard of this AGM where discussions were in-depth. It reflects the sophistication of GEH shareholders.
*sorry for the strange font,I got no idea how to go back after I switched over.
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