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.
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