Sun Life Financial Inc T.SLF

TD

[retiredcf]

Sun Life Financial Inc.

(SLF-T, SLF-N) C$71.34 | US$57.63

Q3/21 Results Event

SLF reported underlying Q3/21 EPS of $1.54, up 7% y/y, vs. our estimate of $1.55 and consensus of $1.52. The core (excluding Asset Management) tax rate was low, adding $0.07/share. Underlying ROE was 15.6% (estimate: 15.9%). SLF raised ROE guidance to 16%-plus (previously 12-14%) and BV/share was up 5% y/y. Relative to our estimate, strong Asset Management results and the tax gain offset weak policyholder experience. Our 2022E/2023E underlying EPS reflect growth of 9-11% (supported by DentaQuest acquisition).

Impact: MIXED

• Asset management underlying earnings were up 23% y/y, reflecting strong market performance, seed capital gains on real-estate, strong net flows in alternative asset management, and positive operating-leverage. MFS, however, reported net outflows of US$2.2bln (forecast: +$500mm), reflecting material managed fund outflows and modest mutual fund inflows.

• Total company insurance sales were down 8% y/y (Asia/U.S. particularly). Asian insurance sales were down 19% y/y, driven by weaker H.K. & international sales, reflecting COVID-19-related lockdowns. Our estimates reflect another quarter of weak Asian sales momentum, with a recovery in 2022. U.S. group sales were also surprisingly soft.

• U.S. and Asia underlying earnings were hurt by weak P/H experience. Experience losses of $59mm this quarter were weaker than our forecast of a $45mm gain, reflecting weak morbidity (Canadian/U.S. group benefits), mortality (U.S. and Asia) and expense experience. Yield-enhancement gains were also materially lower than forecast, while credit experience remains very strong. We have lowered our experience gain forecast. The assumption review (including the URR charge) resulted in a $95mm gain.

• LICAT was down 1-point q/q and the leverage ratio was down 250bps, reflecting the retirement of $700mm of leverage. The holding-company LICAT remained strong at 143%. SLF remains very well-capitalized.

  TD Investment Conclusion

  The premium valuation that we assign to SLF in setting our target price reflects: 1) lower interest-rate sensitivity (e.g., MFS and Group businesses); 2) industry-leading, very solid capital levels; 3) strong track-record of earnings stability; and 4) two of the company’s more important growth drivers — Asia and the U.S. Group Insurance — support strong growth and higher ROEs. The rationale for favouring MFC over SLF remains relative valuation. We continue to rate SLF BUY.