P&O projects modestly higher pre-tax profit
New Straits Times: Saturday, 17 February 2001
By P.W. Thong
PACIFIC & ORIENT Bhd (P&O), which derived more than two-thirds of group earnings from general insurance businesses last year, is projecting only a modest improvement in its pre-tax profit for the current year to Sept 30.
This is in spite of an expected 15% increase in turnover, according to its chief executive officer Chan Thye Seng. Chan declined to elaborate, but said the projections were made after taking into consideration constraining factors such as strong competition within the industry, as well as issues surrounding the current industry wide consolidation process.
"The insurance business is a stable market now. Unless we see fewer players around, the market is not likely to achieve the 20% to 30% annual growth rate seen in previous years," he said after the company AGM in Kuala Lumpur yesterday.
For the financial year to Sept 30, 2000, P&O made a much lower pre-tax profit of RM19.5mil compared with RM72.8mil in 1999, despite turnover rising to RM151.5mil from RM147.7mil before.
The fall in profit was primarily caused by a reduction in underwriting surplus and investment income at the insurance subsidiary company.
Chan said the insurance division, managed by Pacific & Orient Insurance Co Bhd - which formed the bulk of the group's profitability - would maintain a cautious stand when investing in equities.
So far, P&O Insurance has only invested 15% of its RM500mil investment portfolio in stocks, compared with 60% in cash holdings. The remainder is in government securities.
"This year, the climate for stock, investments is going to be very tough, although we might see some light in the second half of the year," he said, adding that any equity investments made would be based on the value proposition.
"Prudency will continue to dictate our insurance business for this year," he added.
Asked on the possibility of any mergers and acquisitions in the light of the recent merger calls made by the central bank, Chan said P&O Insurance has achieved the Minimum RM100mil paid-up capital required and was not in a hurry to expand.
"It's not size but quality that matters for the insurance business, and we are always on the lookout for any propositions that will increase the value of our business."
To diversify from the dependency on insurance, Chan said the P&O group would extend into information technology (IT).
He was confident the IT division, which had turned in losses the past few years, would start making money from this year, where it is seen registering a turnover of between RM13mil and RM14mil.