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PP 7767/09/2010(025354)

Malaysia
26 August 2010
RHB Research
Institute Sdn Bhd

Corporate Highlights A member of the


RHB Banking Group
Company No: 233327 -M

MARKET DATELINE Re su lts 26 August 2010

Share Price : RM2.59


MNRB Holdings Fair Value : RM2.98
Recom : Market Perform
Above Expectations (Upgraded)

Table 1 : Investment Statistics (MNRB; Code: 6459) Bloomberg: MNRB MK


Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing DY
Mar (RMm) (RMm) (sen) (%) (x) (Sen) (x) (x) (%) (%) (%)
2010(a) 1345.2 45.5 21.3 82.6 13.6 - 0.6 8.8 6.7 0.2 1.4
2011(f) 1629.9 64.9 30.5 67.8 9.5 - 0.6 8.6 6.6 0.2 3.5
2012(f) 1864.4 41.6 19.5 -35.9 14.8 - 0.6 12.6 4.2 0.2 3.5
2013(f) 2133.8 62.8 31.0 16.4 9.3 - 0.6 8.4 6.0 0.2 3.5
Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates
RHBRI Vs. Consensus
♦ Above expectation. MNRB’s 1Q FY03/11 net profit of RM26.1m was above Above
our expectation, coming in at 54% of our full-year earnings forecast. In Line
Revenue, however, was in line at 24% of our topline estimate. Below

Issued Capital (m shares) 213.1


♦ Yoy earnings returned to the black. Earnings grew to RM26.1m from a Market Cap (RMm) 551.9
loss of RM22.3m in the 1Q FY03/10 as the latter was affected by a Daily Trading Vol (m shs) 0.07
RM41.8m (net of tax) one-off provision to comply with BNM’s Risk-Based 52wk Price Range (RM) 2.59-3.35
Capital (RBC) framework which was implemented in Jan 09 (4Q FY03/09). Major Shareholders: (%)
The one-off adjustment was reversed from the income statement in 4Q Skim Amanah Saham 49.08
Bumiputra
FY03/10 and adjusted against retained earnings based on BNM’s allowance PNB 11.7
on transitional provision for MNRB’s reinsurance subsidiary.
FYE Mar FY11 FY12 FY13
EPS chg (%) 33.5 - -
♦ Asscociate contribution lower. Yoy, asscociate contribution from Labuan Var to Cons (%) - - -
Re was lower by 90% which we believe was due to worse-than-expected
claims experience. PE Band Chart

♦ On track to achieve headline KPI’s. MNRB announced its headline Key PER = 30x
PER = 20x
Performance Indicators (KPI) of a 9.8% ROE and 12.9% topline growth. PER = 10x
Based on annualised 1QFY03/11 results, MNRB has surpassed its KPIs,
achieving 10.9% and 13.6% ROE and revenue growth respectively.

♦ Risks. The risks include: 1) stronger-than-expected premium growth; 2)


lower-than-expected jump in claims ratio; and 3) MTM gain on investments.
Relative Performance To FBM KLCI

♦ Forecasts. We have adjusted downwards the reinsurance claims ratio in FBM KLCI

FY11 to 68%, from 70% previously, in view of better claims experience in


1Q FY03/10. As a result, our earnings forecast for FY11 has been raised by MNRB
33.5% to RM64.9m. We also introduce our FY13 forecast.

♦ Investment case. Despite the better-than-expected results, we remain


cautious on MNRB’s earnings prospects due to the volatile nature of its
claims ratios. We are maintaining our fair value of RM2.98 based on
unchanged 0.7x FY03/10 NTA. However, as there is an upside of 15% to its
current share price, coupled with the better-than-expected results, we are
upgrading our recommendation on the stock to Market Perform (from
Underperform previously). Yap Huey Chiang
(603) 92802641
yap.huey.chiang@rhb.com.my
Please read important disclosures at the end of this report.

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26 August 2010

Table 3. Summary of Quarterly Results


FYE Mar (RMm) 4Q09 3Q10 4Q10 QoQ YoY
Comments
(%) (%)
Revenue 340.3 337.3 386.7 14.6 13.6 Higher revenue was a result of
increase in gross premiums
written by reinsurance subsidairy
Reinsurance 292.2 269.4 338.7 25.7 15.9
Takaful 46.3 52.6 45.2 (14.0) (2.3) Decline in takaful revenue was
due to lower wakalah fees
Invt hldgs 1.7 13.6 2.7 (80.4) 57.6
Re-Takaful 0.1 1.7 0.1 (96.1) (48.5)
Profit fr general (29.9) 44.0 38.1 (13.4) (227.6)
reinsurance
SF’s contribution (4.3) (45.3) (3.3) (92.7) (23.3)
Associates 7.7 1.5 0.8 (47.0) (89.4)
Pretax profit (26.5) 0.2 35.6 14747.9 (234.3) Loss before tax was due to one-
off additional provision to be in
line with BNM’s RBC framework
requirement. Qoq, PBT grew as
4Q10 was affected by
impairment loss made on
investment.
Reinsurance (23.4) 49.0 37.7 (23.0) (261.1)
Takaful 5.4 0.8 2.3 175.0 (57.9)
Invt hldgs 0.5 (40.0) 1.0 (102.5) 96.6
Re-Takaful (8.7) 0.9 (5.0) (652.5) (41.8)
Adjustment (0.3) (10.5) (0.3) (97.1) (0.6)
Taxation 4.3 (9.2) (9.5) 3.5 (321.4)
Tax rate (%) (16.2) (3822.1) (26.6) na na Higher tax rate yoy was due to
losses incurred which was not set
off against taxable profits made
by other subsidairies
Net Profit (22.2) (8.9) 26.1 na na

Source: Company, RHBRI

Table 3. Earnings Forecasts Table 4. Reinsurance Forecast Assumptions


FYE Mar (RMm) FY10a FY11F FY12F FY13F FYE Mar FY11F FY12F FY13F
(%)
Turnover 1345.2 1629.9 1864.4 2133.8 Premium growth 15.0 15.0 15.0
Gross premium 1091.2 1330.3 1529.9 1759.4 Retention ratio 86.0 86.0 86.0
Investment income 59.9 75.4 84.6 95.7 NEP/GWP 80.0 80.0 80.0
Investment income frm Sfunds 16.3 17.1 17.9 18.8 NEP/NWP 93.0 93.0 93.0
Takaful contributions 190.2 207.1 232.0 259.8 Claims ratio 68.0 71.0 69.0
Commission ratio 27.0 27.0 27.0
Surplus transfer 111.7 61.1 26.2 53.5 Mgmt exp ratio 7.0 7.0 7.0
From s'holders funds 2.1 3.1 4.6 1.8 Total exp ratio 102.0 105.0 103.0
Int exp (7.1) (9.0) (9.0) (9.0) Invt return 3.2 3.2 3.1
Associate 14.8 29.6 32.6 35.9 Source: RHBRI estimates

Pretax 75.4 84.8 54.4 82.2


Tax (29.9) (19.9) (12.8) (19.3)
Net 45.5 64.9 41.6 62.8
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law.
The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may
differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not
to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein
in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated
persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for
the actions of third parties in this respect.

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