Sun Life Financial Inc.
We refine our estimates and see the investment thesis as unchanged
Our view: SLF disclosed strong Q3/23 results across most business lines, reflecting its diversified nature. There were strong experience gains in Canada which we expect to continue (though at a smaller magnitude than we saw this quarter), and Asia earnings and sales were both solid. The only segment lower than our estimate was the U.S., which reflected some weaknesses in dental. We see relatively lighter U.S. results shorter term, but model a rebound in 2025. We continue to see SLF as trending toward an 18% ROE (with solid capital) and good EPS growth. Outperform rated.
Key points:
SLF's underlying EPS in Q3/23 was $1.59, above our estimate of $1.53 and in line with consensus. We update our model to reflect Q3/23 actual results, more conservative results in Asset Management and the U.S., small tweaks in Canada, and we model an increase in Asia earnings in 2025. We expect SLF to repurchase less shares than we previously assumed, and our 2024 core EPS estimate decreases -$0.25 while our 2025 core EPS estimate remains unchanged as we expect U.S. earnings to normalize. We maintain our $76 price target and our Outperform rating.
SLF's capital position was strong, as its LICAT ratio at the holding company (holdco) level was 147% (down -1 percentage point QoQ), above our 143% estimate and the highest among the group. SLF declared a 3 cent increase to its dividend to $0.78 per share, in line with our forecast. SLF disclosed $1.4 billion of holdco cash (was $2.0 billion last quarter). The lifeco's underlying ROE was 17.7% this quarter versus its medium-term target of 18%+, both highest relative to peers.
The Canada segment had the strongest earnings relative to our estimates of $338 million (down ~-9% QoQ but up ~15% YoY) versus our expected $307 million. Stronger than expected results were primarily a result of positive experience which was $74 million while we had a nil estimate, as we typically do not model experience gains or losses. We now model a small amount of experience gains in Canada for the remainder of our forecast period, although smaller than the high levels seen recently.
Asia earnings were $166 million, up ~11% QoQ and ~8% YoY, higher than the $148 million we expected. Earnings were stronger than our estimate mostly because risk adjustment release was $54 million versus our $40 million estimate. The segment had strong growth in insurance sales, which increased ~14% QoQ and ~56% YoY, mostly reflecting strong growth in Hong Kong sales of ~52% QoQ and ~336% YoY. The reopening of the border with mainland China helped drive growth in sales in Hong Kong.
On a P/B basis, SLF is trading at 1.91x, the highest relative to peers and above its historical average of 1.38x. SLF is also trading at the highest P/E multiple among the group at 11.0x, in line with its historical average.