Monday, September 03, 2012

MNRB- bottom-line improved

Results Update

For QE30/6/2012, MNRB's net profit increased by 21% q-o-q or 17% y-o-y to RM50 million while revenue grew by 21% q-o-q or 1% y-o-y to RM404 million. The improved bottom-line was attributed to improvement in claims experienced by the reinsurance subsidiary.

Table 1: MNRB's last 8 quarterly results

If you look at Chart 1, we can see that MNRB's bottom-line falls in between small losses & profit of RM50 million. As a reinsurer, MNRB could be taking on too much insurance risks to improve its bottom-line and as such, it could get hit when insurance claims arose.

Chart 1: MNRB's last 22 quarterly results


MNRB (closed at RM3.08 in the morning session) is now trading at a PE of 6.5 times (based on last 4 quarters' EPS of 46.9 sen). Its Price to Book is at 0.58 time while its dividend yield is at 5.5%.

Based on any of the above, MNRB's valuation is deemed undemanding.

Technical Outlook

MNRB is in a bottoming phase for the past 5 years. We can see that the stock tested the line connecting the trough from 1998 until today. The poor performance of the share price reflects the perception of investors that MNRB is not in control its financial performance- a failure to manage its insurance risk.

Chart 2: MNRB's monthly chart as at Aug 30, 2012 (Source: Tradesignum)


Based on above, I would rate MNRB as a HOLD. The stock has strong horizontal resistance at RM3.40-3.50 and good support at RM2.50.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, MNRB.


Gark said...

You wrote that there increasing risk from MNRB's portfolio but fitch rating has raise the outlook from A- to A this year. Can be a sign that MNRB is much more financially stable, and hence poses less risk for the upgrade?

So IMHO the higher transfer of profits to P&L is well managed as re-insurance in Malaysia is not that high growth. For the high growth Takaful Ikhlas, most of the profits are being put back into future liability to strengthen the book.

Please correct me if I am wrong.

Alex Lu said...

Hi Gark,

I do not disagree with Fitch's comment. The performance of the past 2 quarters are positive and the financial position is stable. My comment that MNRB's bottom-line falls in between small losses & profit of RM50 million for 3 years from early 2008 to late 2011 and as a reinsurer, MNRB could be taking on too much insurance risks to improve its bottom-line.

A reinsurer is a clearing house for insurance risk. If you perform that role conservatively & do not take any risk, you would earn only a small fee. To earn more than a clearing fee, you need to take some risk but you put yourself at risk of an insurance claim. It is a difficult choice, especially with the liberalization of the reinsurance sector.

Gark said...

Hi Alex,

Thanks for the explanation. MNRB total re-insurance profile has increased from 978mil in 2008 to 1,432 mil in 2011. Also the total asset has increased in tandem from 2.57 bil to 5.19 bil. I think the growth in profit is reasonable.

Yes you are right that insurance is inherently risky as we cannot predict future claims, but MNRB has grown it's contract liability to 1.6 bil as well. With a cash & quoted securities buffer of >1 bil, I would think the coverage is adequate.

If there is any big disaster, then MNRB might need to write more into contract liabilities and hence might suffer losses.