MNRB Holdings (MNRB)’s FY13 earnings were  within  our  expectations at  98.4%  of  our  full  year  forecast.  Profit  rose  36%  y-o-y  on  improved underwriting  results  and  investment  income.  However,  no  dividends were announced. We keep our forecasts unchanged, but downgrade the stock to a SELL given its recent steep share price appreciation.  

- Loss  ratios  looking  better.  MNRB’s  net  profit  of  MYR114.2m demonstrated  a  strong  y-o-y  growth  of  36%,  bolstered  by  improved underwriting profitability due to: i) claims ratio fell to 49.8% from 52.1% in FY12,  and  ii)  stronger  investment  income  attributed  to  higher  gain  on disposal of investments. That said, overall profits were offset slightly by a huge  impairment  loss  of  MYR16.8m  arising  from  a  provision  and impairment  of  claims  recovery  from  one  retrocessionaire  and  an outstanding contribution due to Takaful Ikhlas SB.

- Largely  contributed  by  reinsurance.  Gross  earned  premiums/ contributions  grew  moderately  at  7.8%,  with  the  general  reinsurance business  controlling  about  59%  of  total  segment  premiums.  Its  FY13 outlook  is  still  intact  in  view  of  the  rollout  of  Economic  Transformation Programmes  (ETP)  projects,  which  have  benefited  reinsurers’ fire  and miscellaneous classes. Meanwhile, family takaful grew at a strong 13.2% y-o-y but the general takaful segment declined 12.0% y-o-y. We expect to
see  enhanced  distribution  channels  and  new  product  offerings  in  the takaful segment.

- FY15 forecast: Upgrade takaful but downgrade reinsurance. We are less  optimistic  on  the  larger  reinsurance  business  as  Bank  Negara  has begun  liberalizing  the level of voluntary  cessions  (VC) to  its  reinsurance arm, Malaysian Reinsurance (Malaysian Re). The VC level for classes of business  other  than  motor  and  personal  accident  will  be  halved  from  a 5% quote share to 2.5% from 1 Jan 2014 to 31 Dec 2015.

- Expensive  price.  Despite  the  possibly  better  prospects  for  the  takaful business, our overall FY14/15 forecasts remained unchanged due to the bleak outlook in the reinsurance business. We retain our FV of MYR3.30, pegged to a 0.6x FY14 P/BV, but downgrade our call to SELL.

Source: RHB