Company Overview

Genworth is the holding company for various insurance businesses. As of March 31 2013, it has $16.2 billion shareholder funds attributable to Mortgage & Life Insurance, International Protection and Corporate/Runoff. Management actively pursues capital management strategies and has raised $3 billion capital from asset divestments, subsidiary IPO, life block transactions and stock offerings since 2007.

Initiation Report Recap

In the earlier report, we wrote that Genworth was deeply undervalued on a sum-of-parts basis and suggested it could be a sound proxy to participate in the US housing market recovery. Other investment merits include management with a successful track record, as well as approvals for higher long-term care policy premiums. Thus far, this thesis has worked out wonderfully, and rewarded shareholders with 23% capital appreciation in a timeframe of 2 months.

Q2 2013 Earnings Release

Genworth continues to outperform, registering its second consecutive quarter of profitable US Mortgage Insurance (USMI) operations. In terms of share price performance, Genworth is on par with MGIC (25%) and ahead of Radian (11%), yet this was achieved with considerable less risks.

In the last 4 months, Australian currency weakened 14% to 1 AUD = USD 0.90, but its per share valuation is only down marginally by $0.10 to $3.51 because its Canadian associate now trades at higher P/B multiples of 0.92x. International Protection paid out $14 million dividends to the holding company, while $115-120 million premium increase has been approved for Long-Term Care, up sequentially from $60-65 million. Meanwhile, comparables for its US Life Insurance segment have traded upwards to 0.96–1.12x P/B.

Investment Action

We reiterate a TRADING BUY recommendation on GNW at $12.99, with a 12-month target price of $17.26, representing a potential upside of 32.9% from its current price.

Source: PhillipCapital Research - 2 Aug 2013