Manulife Earnings Preview: Focus On Growth In Asia, Recovery In North America

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Manulife Financial

Manulife (NYSE:MFC) is scheduled to announce third quarter earnings on Thursday, November 13. [1] Sustained growth across Asia, particularly Japan, as well as growth in the wealth and asset management businesses in the U.S. and Canada resulted in an almost three-fold year-over-year rise in net income to $934 million in the second quarter. [2]

In the third quarter, we expect the company to retain the growth momentum generated in the Asian markets this year. We expect an improvement in results from the U.S. operations, while in the Canadian market the company will be better positioned to recover lost ground. We have a price estimate of $18 for Manulife’s stock, which is in line with the current market price.

See our full analysis of Manulife here

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Growth In Asia Will Matter

Asia is a high potential market for Manulife and was a key driver of the company’s growth in the previous quarter. The company earns nearly 30% of its total core earnings from operations in Hong Kong, Shanghai, Japan, the Philippines, Thailand, Malaysia, Singapore, Indonesia and Vietnam. During the previous quarter, insurance sales in Asia grew a solid 26% compared to the previous year, amounting to a total of $304 million. Accounting for nearly 50% of the total insurance sales in Asia for Manulife, Japan remained a major driver for the company in the second quarter as well. On the back of robust growth in corporate sales, insurance sales in Japan were up by 68% year-over-year at $158 million. (Second Quarter 2014 Financial & Operating Results, August 7 2014)) Hong Kong also contributed to the growth with a 10% year-over-year increase in sales to $60 million, driven by new product launches.

Besides Japan, Hong Kong and Indonesia, Manulife has been experiencing growth in other Asian markets on the back of product enhancements as well as the deployment of multi-channel distribution networks. The Philippines recorded double-digit growth, while Singapore faced a challenging environment coming from intense competition in the market. We expect that Asia will remain an important market for the company and continue to provide opportunities to expand. We will be keeping a close eye on Manulife’s performance in the region in the third quarter.

Recovery In Canada Will Be Essential

Manulife is one of the largest insurance providers in Canada. The absence of whole life products had a negative impact on retail sales in the country, resulting in a decline in overall insurance sales during the second quarter. However, the company’s efforts towards re-pricing and improving its product mix resulted in a relative improvement in sales over the first quarter of 2014. In addition, Manulife’s market share in the group benefits product line also suffered due to increased competition in the market.

In early September, the company announced the acquisition of Standard Life, the fifth largest life insurer in Canada. We expect transaction costs to affect third quarter results, but in the long term the deal is likely to benefit Manulife by increasing its market base in the group benefits, group retirement and asset management businesses in the country. [3]

We will be keeping a close watch on how the Canadian operations fare in the third quarter.

U.S. Operations

Operating under the John Hancock brand with a market share of 3.2%, Manulife is the eighth largest life insurance company in the U.S. [4] Results, Manulife Investor Relations))

One key takeaway from the last quarter’s results was powerful growth in the mutual funds business. The company is one of the fastest growing mutual fund managers in the U.S., and posted record mutual fund sales in the second quarter. We expect growth in the wealth management business in the U.S. to continue, driven by the company’s efforts to improve product offerings and maintain a competitive pricing structure. It will be interesting to find out if the company is able to maintain growth in the wealth management business in the U.S., and if the efforts will lead to further improvement in insurance sales in the third quarter.

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Notes:
  1. Q3 2014 Manulife Financial Corporation Earnings Conference Call, Investor Relations []
  2. SEC 6-K Filing, August 7 2014 []
  3. Manulife to acquire the Canadian Operations of Standard Life plc, Manulife Press Release []
  4. NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS LIFE AND FRATERNAL INSURANCE INDUSTRY 2013 TOP 25 GROUPS AND COMPANIES BY COUNTRYWIDE PREMIUM []