Aflac Inc. (AFL) reported Q1 2015 with operating revenue of $678M, a decline of 12.5% YOY. Net income came in at $663M, a decline of 9.43% YOY. EPS for the quarter was $1.54, 8.89% lower than Q1 2014. The negative figures are mainly due to stagnant revenue streams coming from Japan, their main earnings contributor. Total revenue in Japan plummeted 12.6% YOY to 3.7B. The primary reason why there was such a huge drop in the revenue data coming from Japan, was because the firm is experiencing alarming sales deceleration from the WAYS products and endowment. This led to an overall drop of 29.8% in first sector sales. Also, Premium income, one of their main sources of capital to invest, also decreased 13.5% to $3.1B.
Despite all the negative data that came from Japan this recent quarter, the company experienced strong growth of sales in the cancer insurance products. Following the amazing Q4 2014, reception of the cancer insurance products has led to an increase of 118%. In terms of firm’s distribution side, their strategic alliance with Japan Post has led to beneficial outcomes. This alliance has made Aflac Japan the leading industry and pioneer of cancer insurance. Going forward, the alliance represents the future of Aflac in Japan and most importantly its presence as an industry leader.
After updating the model, there is ~11% left of upside in the company. I still believe in the potential of the company, as it continues to prove its leadership in the insurance business. There are still concerns regarding the sales in Japan and how the company would hedge against the Yen/Dollar exchange. But going forward, I think that the stock is still a great investment with a great potential for growth.