Tuesday, May 15, 2007

Manulife & Sun Life in China & India

Scotia Capital, 15 May 2007


• Last week we were in China, seeing Manulife and Sun Life in particular, and we recently met with Sun Life CEO Don Stewart to discuss India. This morning we released an eight page report entitled "India and China Overview - Promising Markets for Lifecos but each has its Challenges"

What It Means

• India and China are promising lifeco markets, but we believe in the long run foreign lifecos may perhaps better capitalize on growth in India than China. The market in India is half the size of China, but it's growing faster and has a less onerous protectionist regulatory environment, allowing for better growth for foreign lifecos, whose market share is 35% vs 6% for China.

• Enterprise annuities - the Chinese 401(k) - is currently in the developing stages but we believe the early advantage lies with domestic companies.

• An early entrant in China, we believe Manulife has a leg up on other foreign players in the most important aspect of doing business - regulatory relations.

• Since entering India in 1999 Sun Life's growth has been massive and the company now writes more individual insurance business in India than in Canada. When the ownership limits are eventually raised from 26% to 49% (not likely in near term) the potential of this market is even more promising.
Financial Post, Jonathan Ratner, 15 May 2007

The recent dip for Sun Life Financial Inc. shares presents a buying opportunity, according to Desjardins Securities analyst Michael Goldberg, since the negative reaction to the company’s May 1 first quarter results is due to a temporary issue.

Costs related to Sun Life’s LP3 universal life product, which was launched last year, were particularly bad in the most recent quarter because of strong sales, Mr. Goldberg said in a note to clients.

“Investors have not understood that this high cost is temporary – not only will it come down later this year, but part of the extra strain on past sales will come back into earnings,” he added.

Mr. Goldberg reiterated his “buy” rating and $58.50 price target on Sun Life shares, representing upside of roughly 13%