Strong Core Earnings Growth Drives A Beat For Manulife

Manulife Financial (NYSE: MFC) has managed to beat market expectations often of late, and the most recent quarter was no different. This quarter marks the tenth consecutive time that the company’s EPS has met or exceeded consensus estimates. However, the company’s revenues declined by 14.5% year-over-year to $10.53 billion on account of high realized/unrealized loss in the U.S. division as the company continues to divest its ALDA portfolio. This decline was slightly offset by impressive growth in Canada. Strong results from group insurance and positive net flows in the retirement business boosted the division’s revenue by 45.4%. Moreover, the company’s cost management initiatives have led to a significant improvement in its core earnings margin. 

The company’s stock price has been on an upward trend since the earnings release. We are positive about the company’s future outlook and maintain a $21 price estimate for Manulife, which is ahead of the current market price. Our interactive dashboard on key takeaways from Manulife’s Q2 earnings details our forecasts and estimates for the company. Below we discuss our expectations for the upcoming quarter.

Asia Division To Bounce Back

Asia has historically been a stronghold for Manulife, and we expect this to continue in the future. Given that insurance penetration is relatively modest in Asia, and that demand for coverage is growing, there is substantial growth potential, especially in the Southeast Asia region. This should boost life and health insurance premiums. Meanwhile, ManulifeMOVE, an activity tracking platform that offers premium discounts to customers who stay active, has been a hit in China and was introduced in Singapore recently. Manulife’s Asian business should continue to see solid retail flows from money market funds in China and retirement flows in Hong Kong, which will be fueled by its Mandatory Provident Fund (MPF) partnership with Standard Chartered. Moreover, the company is putting efforts to penetrate in the Southeast Asia region through exclusive bancassurance partnerships, which bodes well for the future.

Canada Division On The Right Track

Manulife’s Canadian division had an impressive quarter as the company is taking various measures to drive growth in Canada. Recently, Manulife re-entered the participating whole life insurance market, which incidentally covers half of all insurance sales in Canada, by launching Manulife Par. This should provide a boost to the division’s top line. Meanwhile, the launch of its Artificial Intelligence Decision Algorithm should gain some traction among customers. Furthermore, the company has recently expanded its Manulife Vitality program to all of its term products, which bodes well for the future.

Margins Will Likely Improve

Manulife has set a goal to drive its expense efficiency ratio to less than 50%, which will result in significant cost savings. In order to do so, the company has announced the consolidation of IT infrastructure vendors and its John Hancock office in Boston, and expects to save $70 million out of these measures. The company also intends to continue reducing its ALDA (Alternative Long Duration Assets) portfolio by disposing of real estate assets and using the proceeds for expansion. While this will result in higher marketing expenses, we expect margins to be boosted by these measures.

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