Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Manulife MFC posted strong numbers, with impressive growth in the Asian business. The firm reported core earnings of C$1.77 billion, or C$0.99 per share, in the first quarter, up 3% compared with the previous year. Adjusted return on equity was 15.6%.
Why it matters: The firm’s Asia segment is performing extremely well, with strong growth, but the overall profits were affected by relative weakness in the US business.
The firm’s annualized premium sales grew by 37% and new business value was up by 36% in the quarter compared with the previous year. The impressive growth numbers were driven mostly by the Asia segment, where APE and NBV grew by 50% and 43%, respectively. Manulife’s profitability was adversely impacted by higher provisions related to expected credit losses and a provision for the California wildfires. Core earnings in the US business declined by 25% due to lower spreads, higher expected credit loss provisions, and the impact of actuarial review.
The bottom line: We are maintaining our C$39 per share fair value estimate for no-moat-rated Manulife after incorporating the latest results. The firm is benefiting from a favorable external environment and shares are in the overvalued territory.
Higher interest rates and buoyant capital markets have been a tailwind for the company in recent quarters, resulting in higher investment earnings and assets under management. A correction in capital markets or lower rates would be a net negative for the company.
Long view: While all life insurance companies are benefiting from improved profitability, Manulife’s long-term growth potential makes it more attractive.
Key stats: Assets under management and administration in the wealth and asset management segment grew by 13% during the first quarter and were recorded at C$1.04 trillion. Core profitability in this segment was 24% higher on a year-over-year basis due to margin expansion and higher AUM.
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