I expected a dividend range of 56 sens to 60 sens. I was totally taken by surprise when 2 hours ago they announced 63 sens. I must say it is a very generous dividend considering a difficult insurance market in 2021.

The fact that the company continues to declare a 17 sens interim dividend for the poor 1st quarter results only means one thing. Management believes that the next three quarters will produce good results. If the coming two quarters show good results, the final dividend may be maintained despite the setback in the first quarter. We are talking of 52 sens for 2022 financial tear. In the next three quarters, there will be higher sales and profits because the company will be in full production and demand for its products will pick up. The uncertainty now is that we do not know how Yamaha Vietnam will be doing in the next three quarters. This quarter is the first time they are making losses instead of contributing profit to the group. The other good news is that the group is still cash rich and maintaining good dividend payout despite lower profitability is not a problem.

Thanks for sharing Observatory. I think RCE Capital has learn an expensive lesson in 2013. They were then too aggressive in penetrating the loan market to civil servants. There was no proper internal controls. As a result of some changes to the lending rules, they made some big write offs. Since then, they are very careful in their lending, limiting the size and tenure of their loans.

It appears to me that they do not want quantity but rather quality in their loan portfolio. They try to control their portfolio growth to no more than 10% per annum. At the moment, their portfolio size of RM1.7 billion represent less than 2% of the total market potential. A lot of room for growth but they are in no hurry. I have full confidence in their management. Slow, steady and profitable.

I do not agree that we should emphasize too much on the price versus book value factor in determining the fair value of a profitable and well managed stock. We should look at the company as an on going concern and not on a liquidation basis. If a company is not doing well and has been losing money every year, then the book value or net asset value becomes important. If the net asset value is much higher compared to the share price, it makes sense for some party to take over the company and strip its assets for sale. This is especially true for non performing property companies.

Take for example the net asset value of Nestle Malaysia. It is only 3.16 and yet the share price today is 135.4. Hence, the share price is 43 times its net asset value. This is because everyone expect Nestle to operate indefinitely over the foreseeable future and liquidation of its assets as unlikely.

The same principle should apply to RCE Capital. As the company is well managed and has a track record of increasing profit and dividend over the years, the more important consideration would be PE ratio and dividend yield. Barring unforeseen circumstances, the company is expected to operate well into the foreseeable future and continues to grow. Hence, the book value to price ratio becomes less relevant.

As far as I am concerned, if the PE ratio of this company is well below 10 and its dividend yield is above 5.5%, I will continue to accumulate this counter slowly but surely. In fact, I started collecting this counter at around 1.60 early last year because I was attracted by its fundamentals. My only limitation is availability of cash to buy more.

There is hardly any counter in Bursa that can show a steady and consistent growth in net profits and dividend in the past 6 years despite economic uncertainty. Before 2015, RCECap had some rough times and the dividends then were miserable. However, after some restructuring and change in management strategy since 2015, the company never look back but continue to grow from strength to strength. Even very good companies like Nestle, Maybank, F & N and Hong Leong Industries etc suffered downturn in profitability in 2020 because of the covid pandemic. However, RCECap was hardly affected but continued to strengthen.

The average PE of Bursa's counters is around 15. Some counters are in fact trading at PE of over 50. I really cant understand why the company's PE has always been under 8 or 7. This fantastic company should be given a PE of around 10 at least. One would only give a PE of 7 or 8 to a company that is without any growth prospect in profit or dividend or perhaps to a company with high volatility or uncertainty in profitability. This is certainly not the case with this company.

The market can be irrational in the short term but will be rational in the long run. I am sure the market will award a higher PE to RCECap in the medium term. Perhaps in the PE region of 11 to 14.

I also think the Q3 results is equally as good if not better than Q2 results ( financial year ending 30th June 2020.) When last financial year results was bad, dividend payment was immediately slashed from 50 sens to 42 sens ( a drop of 8 sens despite massive cash holding ) On that logic dividend should be restored back to 50 sens or even higher because of better results and the massive cash holding which is hardly earning any income. I really don't understand why the controlling shareholder wants to hold on to so much cash when there is no pending new project or plant expansion. The only reason I can think of is privatization.

Attention Untong. I noticed you managed to get the minutes of the AGM of Allianz Malaysia for several years as per your posting on 9th of march. How do you go about getting them. Do you write to the secretary and the secretary is obliged to sent to you if you are a shareholder and has attended the meeting. hope you can advise.

Can we as shareholders ask for a copy of the minutes of the AGM to be send to us. I want to know if the requests we made in the AGM was duly recorded or were just ignored. Can someone let me know.

Dear limyuwei. I am very impressed you know so much about the operation and accounts of insurance companies. I wonder if you can enlighten us as to why the total dividend paid for 2020 is lower than 2019.( 58% in 2020 v 65% in 2019 ). Since the net profit is higher for 2020 we would have expected at least a similar payout if not higher. Is there anything in the operation or accounts that show company is a bit tight in available cash balance. All the shareholders are quite disapponted.

very sorry typo error. Should be as follows

1st Q 44.9

2nd Q 94.8

3rd Q 72.9

4th Q 14.8

limyuwei. Sorry. It is not ok. You miss out the Q4 figure. If you click on the disclosure on top of this page and look under financial results you will get the following

2020 Ist quarter 14.8

2020 2nd quarter 72.9

2020 3rd quarter 94.8

2020 4th quarter 14.8

Total earnings per share (before diluted interest ) RM 2.27 per share

Diluted earning per share RM 1.50

This seems to reflect on every year that Q4 results shows much lower EPS but not net profit. Hope you can enlighten us. Thanks

limyuwei. I have a question to ask you. Why is it that the earnings per share for the last quarter is always understated. The other 3 quarters and the overall full year are correctly reported. There must be a reason for it.

One may be an accountant, investment banker or financial analyst but will find it difficult to understand the mechanics of provisions and profit realization in the insurance business. We are lucky to have someone like limyuwei to explain to us. I am pretty sure she/he has a lot of accounting experience in the insurance business. So glad you are in our chat group and we appreciate your contribution to our understanding of the accounts of Allianz Malaysia.

I used to own some Nestle, Hong Leong Industry and Maybank shares. I have sold all my Nestle shares and made a small fortune from it. I have also sold my Maybank shares but made a loss from it. Maybank was really a big disappointment to me especially when they skipped dividend payment and reported lower profits. Now I am holding mainly 3 counters ie Allianz, RCECap and Hong Leong Industries. I am allocating about 30% of my resources to each of the counter as I happen to like them equally. As Warren Buffet said, holding 3 or 4 counters at any point of time is a better investment strategy than owning a lot of counters. If one has say 20 or 30 counters one would not be able to monitor their performance and hence lose control of one's concentration.

Mr. Observatory. As a shareholder myself, I would like to thank you for putting so much effort in doing research on the company. I would say that for most part, you are right in your research facts. However you may be wrong in 3 arears which I would like to highlight to all the readers.

(1) There is no way Bank Raayat or any bank can give out a clean loan of up to 10 years at an effective rate of 4.99% per annum as you have pointed out. At that rate, the bank will certainly lose money as cost of fund is volatile over a 10 years period. Don't forget that the actual cost of fund plus overhead cost and provisions will be much higher than 4.99%. Just like Hire Purchase financing, there is an add on rate and an effective rate depending on the period of financing. Effective interest of 12% p.a. over 5 years or more is very reasonable. Nowadays it is not easy to get a clean loan anywhere.

(2) You wrongly assume that when a borrower settle a loan with RCECap they will go to another bank for refinancing. In fact almost all of them will just get a bigger loan after they settle the smaller outstanding balance with the company. This is where the company makes some extra money from the early repayment. A very good deal for both parties.

(3) You have said that RCECap has enjoyed a PE of 6.5 in the past years and you are quite happy with that. I totally disagree with you. A fantastic company like RCECap should deserve a PE of no less than 10. The average PE of all counters in Bursa is 15. Some counters are rated with PEs of 30 or 50 or even 100. Even Aeon Credit can command a PE ranging from 12 to 15. In all honesty it would be sheer madness to rate Aeon at 15 and RCECap at 6.5 The market can be irrational in the short run but will be rational in the long run. RCECap is going up in price lately because the market is revaluating it according its fundamentals and future performance. As far as I am concerned I will keep on accumulating this counter ( subject to cash availability ) as long as the PE is below 9 or 10 and I am sure I am on the right track to make good money.

My educated guess is that there is a special dividend announcement next week. The fact that they are not announcing an ex date or payment date for this interim is they want to combine the 2 dividends with a common ex date and payment date. As to how much is the special dividend is anybody's guess. I think it would be at least 17 sens and anything more would be really a bonus to shareholders. Hence, total dividend would very likely be 75 sens compared to 65 sens last year. With higher dividend and better financial results, Allianz share price should be higher next year.

I started picking up this stock at around 1.51 because i was attracted by the very low projected PE of 5.0. I did not understand why market rated this stock at such a very low PE while Aeon Credit received a PE of around 15. That is why the market is currently revaluating the stock as the market is imperfect in the short term but can be more perfect in the long run. I can't think of a better answer to it. By right, the market should give this fantastic company a rating of at least 10 if not more. If so, the stock should be well over 3.00.

I don't agree that this is a slow moving counter. In fact, it is one of the best counter in 2020. During the panic in march 2020, this counter was traded to as low as 1.40. Since then, the counter has gone up gradually and has been trading at about 1.90 most of the time. Between March and early December a total of 12 sens dividend has been given. Today. the counter hit a high of 2,50 and closed at 2.45. If you had bought in march at 1.40, your net cost is only 1.28 after lessing off the 12 sens dividend received. If you sell today at 2.45, you would have made 1.17 or 91% profit within 8 months. Is it surely not a slow moving counter.
The best thing about this counter is that there is no violent swings up and down like some of the glove counters. It is therefore a true investment counter that one can put it aside and need not worry about it.
I am very confident that this counter can go up much higher next year if its performance and dividend can be sustained. I notice that annual dividend is increasing every year. A price target of 3.30 next year is not unreasonable. In today' business environment it is not easy to find a company like RCECapital.

Very well said SilverHawk. As far as Hong Leong Ind is concerned, just focus on the motorcycle business and dispose of all the building materials business. Too diversified a company is not necessary a good thing especially when company did not have a CEO for sometime. Furthermore be generous with dividend payout and the share price will fly.

Based on all previous annual reports I read I understand that the Yamaha factory has excess capacity to increase production by about 30%. I believe that factory has not reached 100% capacity yet. There is no harm to increase production capacity further to anticipate spike in future demand.

I have done a rough estimate on the profit contribution from the various business sectors of the company for 2019 and 2020. I have to say I cant get 100% accuracy and that is because the company combines the motorcycle business with the ceramic business under consumer business in their financial reporting. It is totally unfair to minority shareholders and the financial reporting is not transparent. Luckily, because we have the 31% minority shareholding in the motorcycle subsidiary we can postulate the profit from the motorcycle business as a whole to the company.
2019 2020 % change
Net Profit to company RM409m RM239m - 42%
Contribution from local motorcycle sales RM273m RM233m - 15%
Contribution from Yamaha Vietnam RM90m RM40m - 56%
Contribution from others(mainly building materials) RM46m (RM34m) NA

So the biggest problem to the company is the building materials sector. Instead of making RM46 million in 2019, it now made a loss of RM34million in 2020. Hence there is a negative impact of RM80 million within 12 months.
Actually, the Vietnam operation is also very disappointing. In the last few years, their business and profits were growing steadily. Suddenly, in 2020 their business just gone down. I hope company will let us know the reasons in coming Annual Report.
The real jewel in the company's business is the local Yamaha motor cycle business. It is currently the market leader with about 42.8%(estimate) market share, hence overtaking Honda. It is still growing both in terms of volume and market share. I understand that their sales are very good in July and August this year because of pent up demand. Remember that there were no production and sales for more than 2 months during the MCO period. Total sales and profits from local motorbike business in coming financial year should be much better.
I really hope the company would be more transparent in their next annual report. Otherwise minority shareholders and potential investors will have to do a lot of guessing work.

Hi tclittley. Your analysis on the worth of HLI is very comprehensive and for most part correct. I have been very bullish on the counter since I discovered it four years ago. I felt that it was very much under valued. I started to accumulate the shares from 4.42 onwards and my average cost now (after deducting all dividends received ) is about 5.00. So at around 7.50 today I still made a gain of 50% over a 4 years period. I am one of the top shareholders of the company and I intend to stay put as i have full confidence in the management and business prospect of Yamaha bikes in Malaysia. I honestly believe the stock is worth much more than current price because of its very strong financials and good sales of Yamaha bikes in Malaysia The point you totally miss out is Yamaha's performance in Vietnam. Of late profit contribution from its associate company in Vietnam keeps dropping. In fact in last quarter, there is a small loss. This will dampen the share price of HLI in the short run. If and when Yamaha Vietnam recover from its past glory and the building materials sector improves its profitability, then your target price of 12.00 or more is possible. In the immediate future, a likely bullish price would be around 10.00 to 10.50 level.

Hi Finplan. I am impressed with the way and logic you analyse RCECAP. It should be the way bankers analyse a company before a loan is given. There are two other good dividend and solid companies in Bursa. One is Hong Leong Industries. This company is very cash rich. About 70% of its assets are in cash holding. Its dividend record is consistent although the current MCO has affected its profitability. The other is Allianz Malaysia which is in the insurance business. This company has a very good track record in profitability and its financials are very solid. Have you by any chance noticed these two stocks. If not, it would be nice if you can have a short write up on them. It would be much appreciated by serious investors like me.

Hi Finplan. I am very impressed with your article on RCECAP. It is very well written and analysed. Compared to the write ups coming out from the stock broking firms your write up is far more objective and easy to understand. I totally agree with your analysis. If one wants to invest in a good dividend stock as well as one with good track record, good management, good financials and minimum volatility in business uncertainties, then RCECAP is the stock to invest. On the other hand, the capital appreciation of this stock will not be impressive. It will be slow but steady. That is why the market give it a lower PE than most other stocks. The average PE of this stock is less than 8 while the glove companies has hit over 100. For retirees like me who want a steady cash income and a very safe investment, RCECAP is about the best counter to invest in.

A good counter will stand all the volatility of the stock market. Allianz was pushed down to 11.30 in march. Within two and half months it goes back to above 15.00. This is a really good company with strong fundamentals and growth potential. If you have this stock, just keep it for long term investment and see the capital appreciation over time. Another Nestle in the making.

What I don't understand is why much bigger companies like Maybank and Public Bank can come up with quarterly result within 2 months and a smallish company like Rcecap need more than 2 months to come out with results. Does not reflect too good on management and auditor.

Normally, all listed companies are given up to 2 months from date of last quarter profit closing to announce quarter results. However, due to covid 19 and the MCO, the SC has allowed listed companies another extra one month to announce results. Hence, RCECap would have to come up with fourth quarter profit announcement by end of june at the latest instead of end of may.

Yes. I believe you. With better results, dividend for full year should be at least 11 sens compared to 9 sens for previous year. At closing price of 1.76, the dividend yield is about 6.25%. The PE should be less than 6 at current price. The NTA is about 1.95 and hence the price over NTA is around 90% With expected EPS of 32 sens and dividend of 11 sens, the payout ratio is only 35%. Hence a lot of earnings going back to reserves. Investing in this counter is far better than putting money in bank.

If i am not wrong, there is no time limit for conversion of the preference shares to ordinary shares. The only disadvantages of the preference shares are minimal i.e no voting rights and highly unmarketable. If one intend to stay put on investing in the company because it is a good investment, then it is better not to convert at all. The dividend for the preference shares is much higher than the ordinary shares. Hence with the higher payout, why go for a lower one.

LPI is just in general insurence. Allianz is in both general and life insurance. In fact, life insurence is far more profitable. In the long run, LPI will lose out to Allianz in terms of growth in premium collection and profitability.

If you follow Berkshire Hathaway general insurence quarterly result, you will note they make higher profit from motor insurance business because of less travel,thus less accidents, thus less motor claims and thus better profit margin. As Allianz is market leader in motor insurance business in Malaysia, it will benefit from better profit from their insurence becausr of lesser claims. March,April and May will be good months Like it or not, you have to insure for vehicles even if you travel less

Wow. Your analysis is so complicating that most people may not understand. Although I have been a serious investor for over 45 years and had been a successful one, I never resort to such meticulous and complicating calculation. I wonder if fund managers and stock analyst use such detailed method before they make recommendations for lay investors to buy. Anyway, good job and thanks for effort.

Another good thing about company is that it can increase Yamaha bikes production by 30% to 40% without increasing capital expenditure on plant expansion and hence increasing cash inflow. One can expect the already bloated cash holding to increase even further in coming years. Company has to increase dividend payment substantially to contain growth of cash holding.

For certain strange reasons motorcycle buyers in Malaysia prefer Yamaha bikes to other brands. That is why Yamaha captures about 51% of local market. On the other hand Vietnamese buyers prefer Honda bikes than any brand. Yamaha is trying hard to capture a higher share but find it an uphill task.

I understand from dealers that there is a pent up demand for motorcycle in the country. As food delivery is getting very popular day by day the demand for motorcycle is increasing. As income level of the working class is expected to come down, people prefer motorcycle to cars to save cost. Car sale will be down and motorcycle sale will benefit. One can expect Yamaha bike sale to jump up in the coming months. That is good news for the company as 90% of company profit come from Motorcycle sales.

Actually in a major recession, the best business to be in is insurence business. One has to cover potential loss with general insurence policy. One has to pay regular premium for coverage of life policy. Yes. In a recession business is slower but profit and cash will continue to come in. Unlike the airline or tourism or casino business, profit and cash flow can disappear overnight in an economic lockdown.

There are pros and cons buying their preference shares. Yes. The benefit of preference shares is higher dividends and also in the event of company winding down, you have preference to company assets over the ordinary shareholders. The downside is that the preference shares are highly illiquid. Secondly, preference shareholders cannot vote in AGM. Thirdly, on conversion to ordinary shares you will get conversion rate of less than 1 to 1 basis. You get slightly less shares.

The fact remains that Yamaha sales is growing double digit every year for last 4 years. That is very impressive. You can verify that from Annual Reports.

I was told it is about 45% and Honda 35%. Other brands together is 20%. This may be more correct. Yamaha eating into market shares at others expense last 3 years

The company has RM 1.6 billion in cash. It can weather any storm.

For a company with such a fantastic track record in profit growth in last 12 years and trading at a PE of about 10, it is indeed a very good counter for long term investment. However, price may still go down a little if market is very bad. No one is so smart to buy at the lowest. You may collect at a reasonably low price but not at lowest price.

Allianz is one of the best stock in Bursa. Don't worry about price fluctuation. Keep it for medium or long term and you will see good capital gain. The whole world markets are falling. So even very good stocks will fall. If you have extra cash pick up more Allianz.

That is not correct. The earning per share in 2019 is 142.3 compared to 109.1 in 2018. This is the diluted EPS assuming preference shares are converted to ordinary shares. Please read carefully. A lot of people got confused

Can I have a deeper study on its financial statement and come back to you. On the whole I am quite happy with Hong Leong Ind performance although I wish their Vietnam market could have done better. When that market recovers, it's earnings will shoot up. It's cash holdings is 52% of company total assets.

Noted. See how steady Allianz is despite such a week market. When market recovers Allianz will really fly. It is fundamentally a very good share as you have all along written. I still remember that during the Asian financial in 1998 when every share dropped to rock bottom Nestle was still holding strong. This is the mark of a really solid counter. Allianz is such a stock.

Ha ha ha. I am no Warren Buffet. I am a very serious investor buying good and under valued stock. Allianz is one of them. Most retail punters like to gamble and listen to rumours without doing their homework. That is why they all lose money. I never trade or speculate in the Market in all my 45 years of stock investment.

I would like to meet you in next AGM of Allianz. You must be quite a successful investor from what you write.A lot of people are writing nonsense in the i3investor block pages. This is not right as these info pages are supposed to be for exchange of information so that we learn more on profitable investment. Well, there are all sorts of people in this world. Hope the good ones can contribute more.

I have been following the analysis of silverhawk on hong leong Ind and Allianz. I must say they are very good. It shows that he has done a lot of homework on them before he writes anything. The writings are factual and analytical. Incidentally, I also own a lot of both counters. Keep it up.

Wow. Your writeup is so deep and analytical. You should attend next AGM to find out the chairman opinion. Hard for ordinary shareholders to give you an accurate answer because we do not have simple knowledge such as how many bikes are sold and what exactly is the market share. The lumping of motorcycle sales with that of ceramic tiles under consumer segment is most rediculous as one does not know how the tiles business is doing.

Yes. I went to AGM and got some explanation. Apparently, the company does not put all money in bank as fixed deposits. They put in money market. Income from money market not treated as interest income.

As far as cash management is concerned it is bad policy to keep so much assets in cash. At the moment cash holding represent about 50% of total company assets. So much so that company got delisted from Shariah compliance Index last year. Recently got back into index again because more cash put in Islamic funds.