@wsb_investor, it's the estimate from TA Securities.

https://www.thestar.com.my/business/business-news/2022/01/14/ta-securities-retains-overweight-on-insurance-sector

Anyone who still find the story believable may also enjoy this other story

https://www.amazon.com/LBJ-Mastermind-Assassination-Phillip-Nelson/dp/1620876108

A story to give the impression that a national conspiracy is going on.

A conspiracy that involves Bursa, KPMG, EY, EPF, KWAP, PNB and many more.

A conspiracy to wrest control of Serba Dinamik, a company that was worth just a few billions even before the current saga.

A company that is probably in negative equity by now, after defaulting on a mere USD6.5 million debt interest payment.

A national conspiracy to wrest control of a company that probably does not even have enough to repay its creditors?

"The floods that hit the country recently resulted in losses amounting to between RM5.3 billion and RM6.5 billion, said economic affairs minister Mustapa Mohamed.

He said losses to property amounted to between RM1.2 billion and RM1.4 billion, followed by damage to vehicles, estimated at RM1 billion to RM1.3 billion.

Mustapa said the manufacturing sector suffered losses of between RM800 million and RM1 billion, and the agriculture sector between RM40.9 million and RM 49.9 million.

Meanwhile, losses to public assets and infrastructure amounted to RM2 billion, and those suffered by business premises were estimated at RM500 million to RM600 million."

https://www.freemalaysiatoday.com/category/nation/2022/01/17/up-to-rm6-5bil-losses-due-to-floods-says-mustapa/

Recall earlier PIAM estimated the industry's exposure at RM2b to RM3b. Recently an analyst put Allianz's gross and net exposure at RM300m and RM50m respectively. Not sure about the basis of the estimate, but judging from the minister's figures on vehicle damage alone and Allianz's market share, the gross exposure may be lower.

Sardin, thank you for sharing the Q&A.

The document link can be found here
http://www.hli.com.my/gm_current.php

I attended the AGM. There were many questions asked and answered during the AGM that couldn't be found in the published minutes or Q&A documents!

I've noted a few. For example, there were questions about the number of shifts for the Malaysian motorbike plants (mostly 2 shifts), utilization (80% of current capacity), downtime due to parts shortages (affecting overall production 10% to 15%). There was also a question about frequent changes of senior management in the past few years (they replied it's fine).

The person preparing the minutes is too lazy! It deprives important info from shareholders who couldn't attend the AGM.

He only did the bare minimum to comply with the listing requirement which dictates that listed companies must produce a "Summary of Key Matters Discussed" after their AGMs. Companies much smaller in size than Hong Leong Industries have done better!

I hope someone in the company senior management or the board will read this message.

If you can't do somethings like spending an extra 30 minutes to produce a more complete minutes, how could we shareholders expect you to protect our more important interests?

Based on valuation methods like dividend yield or dividend discount model, it should enjoy a premium.

However the trading volume is thin. Any fund will take a long time to acquire or dispose a meaningful position. And the market price will move against it during the acquisition/ disposal. From that perspective it should suffer a discount for being illiquid.

The net result is market price fluctuates between a small premium to a small discount, reflecting the relative strengths of these two forces.

But for individual investors who have strong conviction and plan to hold forever (ok some exaggeration here), holding preference share makes sense.

Of course his brain isn't wrong. He's a smart guy.

500 comments ago, when he just started commenting on SD, he took a different position.
https://klse.i3investor.com/servlets/cube/post/pearlwhite.jsp?fp=27

Something changed along the way.

Your long essay is misleading.

By comparing an apple to an orange, and showing they are not the same, you then went on to invent the story of "battle of the nominees"!

Of course an apple is not the same as an orange! Full stop. No further conspiration theory is necessary.

(1)
The "apple" here is the Top 10 Investors (as of latest filing). Note the keyword "as of latest filing".

https://www.bursamarketplace.com/mkt/themarket/stock/SERB/ownership

According to this list, Employees Provident Fund Board or EPF owned 4.97% as of 25-Jun-2021. That is correct. After 25-Jun, there was no more update from EPF,

When EPF's holding dropped below 5%, EPF ceased to become a substantial shareholder. Therefore EPF did not need to disclose further shareholding changes. EPF could have disposed its entire holding without the need for further disclosure. The Top 10 list only records EPF's position during EPF's last announcement, at the moment when EPF's holding crossed the line to below 5% as of 25-Jun.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3171359

Same applies to Kumpulan Wang Persaraan (Diperbadankan) or KWAP. KWAP'd holding dropped below 5% after 1-Jun-2021. At that point KWAP ceased to be a substantial shareholder. No more disclosure was required. The Top 10 list only records KWAP's last position when shareholding dropped below 5%.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3163704

(2)
The "orange" you used for comparison is the list of Top 30 shareholders published in Serba Dinamik 2021 Annual Report. This was the snapshot of top 30 shareholders as of 2-Dec-2021.

You don't find EPF and KWAP anymore.

The reason is simple. EPF and KWAP have sold most if not all of their remaining shares such that they were no longer in the Top 30 list by 2-Dec.

We don't need a "nominee battle" conspiracy theory to explain the difference between an apple and an orange.

During the past 5 years dividends were announced in January.

https://www.bursamalaysia.com/market_information/announcements/company_announcement?keyword=&cat=EA%2CENCO&sub_type=&company=1163&mkt=&alph=&sec=&subsec=&dt_ht=&dt_lt=

I concur with @dumbMoney. Sam, KGB and Kobay are beneficiaries of fund rotation into the tech sector.

Any investor who has bought into the sub-sectors of ATE (Vitrox, Penta, Greatech, MI..), OSAT (Inari, MPI, Unisem..) or precision engineering/ semicond support (UWC, Frontken...) two years ago will also enjoy enormous capital appreciation.

The test for ICAP fund manager is how to deal with the current situation. Will he sell if he believes the current price has far exceeded intrinsic value?

If he doesn't sell, does it mean current price is still within fair value range? That will imply the stocks were sold at great discount just not very long ago. But if they were such a good bargain then, why didn't he invest more instead of holding so much cash?!!

The common obstacle to rapid renewable energy adoption is intermittency problems, which can only be mitigated with advances in energy storage and continent size smart grid that even out fluctuations in power generation.

However Malaysia has the unique advantage (or problem) with too much power generation capacity due to poor planning in the past. Power reserve margin is in the range of 35% to 40%.

https://www.thestar.com.my/business/business-news/2020/07/15/power-reserve-margin-to-rise-above-40

Some say the optimum reserve margin should be 15%

https://www.malaysiakini.com/letters/564186

The problem is too many coal fired power plants have been commissioned. The last one came online just about a year ago. In order not to prematurely scrap the investment, coal fired power plants will only start phasing out in 2030s and the last one in 2044.

But demand for power is no longer fast growing even after the pandemic. As economy becomes more advanced the energy intensity per unit of GDP declines.

All new power plants will be in the renewable space, and they continue adding to the already abundant spare capacity. There isn't much room for gas plants. Not until coal plants get phasing out.

It's expected that the industry lobby wants gas to play a greater role.

But according to the government plan, the share of gas in power generation capacity will fall from 45% in 2021 to 36% in 2029, before picking up from 2030 onwards. Refer page 12.

https://www.st.gov.my/en/contents/files/download/169/Report_on_Peninsular_Malaysia_Generation_Development_Plan_2020_(2021-2039)-FINAL.pdf

Investors must have patience.

Good input. Can we expect the company to make provision in next quarterly report? Based on the amount we can perhaps get a glimpse of Allianz General's risk tolerance, on how much they are willing to cede to reinsurers to protect downside (besides the info on 15% gross premium).

"General insurance industry facing up to RM3 billion in flood-related claims, says PIAM"

https://www.theedgemarkets.com/article/general-insurance-industry-facing-rm3-billion-floodrelated-claims-says-piam

Let's do a back of the envelope calculation on Allianz General's exposure.

(1) PIAM estimated RM2 billion to RM3 billion exposure. Let's take the average RM2.5 billion.

(2) Allianz General has about 13% of market share. For simplicity, let's assume uniform exposure across different insurance types like motor, fire... Allianz General's exposure will be RM2.5 billion * 13% = RM325 million.

(3) During FY2020, gross premium of Allianz General is RM2,356 million. Premium ceded to reinsurers was RM363 million, or about 15% of gross premium.

(4) I'm not familiar with how reinsurance works. In the case of recent flood, does reinsurance pays out when a certain claim threshold is reached? Not knowing how it works, I will make the assumption that Allianz General and reinsurers will shoulder the claims on 50-50 basis. Allianz is expected to shoulder RM325 million *0.5 = RM163 million.

(5) The PBT for Allianz General in FY2020 was RM432 million. Assuming it remains the same, an extra 163 million payout represents 38% reduction in PBT.

Any thought?

I come across this advertisement by Allianz General. There is a section talking about its stance on online sales.

*****

This coming year, Wang says Allianz General will continue to use Covid-19 as a backdrop to design its products and listen very carefully to the voices on the ground to ensure it produces the right kind of solutions. The one thing it won’t do, he says, is sell them directly to customers online.

While it has over 40 digital partners, the insurer still prefers a hybrid business model that sees its agents personally dealing with customers. That might sound unusual in a time where businesses are increasingly digitalising their products and services.

Wang explains that this is because he is not convinced that the company can be as effective at delivering its services via an online portal.

“You can get a quote and key in some details; it’s just that the last mile of buying, you can’t buy. I want to route you to our intermediaries so that they can provide you with the service. As a responsible insurance company, we don’t want to get a whole bunch of customers that I don’t even know how to service — that’s not our business model,” he stresses

*****

Despite what the new CEO has said about online sales, I suspect the main reason is the company does not want to alienate its agents.

Does it mean other players selling direct to customers can eventually eat into its market share through the offering of more competitive products?

I attended the EGM this morning on the subject of Hong Kong listing.

From the Q&A, it’s clear that the management has not come to term with its earlier folly. Driven by its dream to become Fortune 500, TG had earlier spent over a billion on share buyback at 7 to 8. But it still dreams of listing in Hong Kong such that it is willing to sell new shares at 2 to 3. This is the classic example of buy high sell low.

Questioned by a shareholder, the management gave the excuse of the need to balance shareholders looking for dividend (hence the special dividends earlier) and shareholders looking for growth (hence the need to raise money now by selling shares in Hong Kong at a low price).

The truth is management probably got carried away by the record profit last year. It wrongly assumed that the party could last a lot longer. Institution funds who piled in to glove stocks in 2020 should thank TG for the billion ringgit share buyback. Courtesy of TG and all its long term shareholders, the share price was sustained long enough to give these funds enough time to cash out their huge position.

After its first folly of buying high, the TG management is now about to commit the second mistake by seeking Hong Kong listing at all cost. The allure of Hong Kong Stock Exchange is probably too great to resist. But a company does not become great just by getting listed in New York, London or Hong Kong. It’s just like any aspiring young artists don’t become famous just by moving to Hollywood. I predict if the listing is successful, the liquidity and valuation will stay low and disappointing, as many companies have already found out.

The contrast of TG with Harta management could not have been greater. Beware of management who are overly concerned about share price and “status” instead of laser focus on the business. With hindsight I made the right decision to sell most of my long term TG holding last year despite missing the peak. Now I’m content just to keep whatever little I have to keep a tab on what is going on. No intention to add this glove stock yet despite apparent low price.

@Papayashot, I only have a basic understanding that Core PBT = PBT - fair value effects - tax impact. The result is presented this way in page 7 and 8 of analyst briefing slides.

Not sure about the detailed calculation.

@wsb_investor, thank you for the explanation.

Based on what you've said, IFRS17 should have been implemented long ago. It will save everyone from major misunderstanding. For example Affin assigned a RM8.4 TP to STMB in late 2019 based on 4.75X book value. Now it's RM3.8. Despite the pandemic the impact to insurance sector isn't that great. May be this can explain the constant share disposal by STMB insiders!

@wsb_investor, it seems that paying too much attention to life insurance quarterly core PBT could be a distraction. Not to mention PBT that incorporates fluctuation in investment gain/ loss.

Would you agree with this view?

My reasoning is this. On the revenue side, other than single premium products (account for only 17% of GWP in 9M21), other policies have been written years before. Their quarterly revenue contribution should be predictable right? For example, ALIM quarterly gross earned premium for the last 4 quarters are within the range of RM753m to RM826m, a variation of less than 10%.

I suppose on the cost side they are exposed to the rise and fall of claims, management expenses etc. Core PBT in the last 4 quarters vary between RM43m and RM69m. However the quarterly cost are rather stable in the low RM700 million range. The seemingly larger swing in core PBT is due to the relatively thin (<10%) PBT margin.

When you look at the life insurance core PBT, what are the factors you will look at to gauge the performance?

@Papayashot, I’m not too concerned about fair value changes due to large swing in bond yield. Looking at historical record, drastic changes in bond yield is not a regular phenomenon (hopefully not!)

https://www.marketwatch.com/investing/bond/ambmkmy-10y/charts?countrycode=bx&mod=mw_quote_tab

Besides, I think it was explained here before that interest rate changes also have an offsetting effect on liability. Just that I don’t know how to pin point the change in the liability side. Can anyone elaborate on that?

I like to think NBV as addition of future profits to the "profit reservoir". So it's important.

Of course these future profits are calculated by actuarists based on methodology and their assumptions. Not sure if BNM dictates the parameters in NBV computation. But Allianz being a subsidiary of Allianz SE it believe has to follow its parent’s way, and somehow comply to a “global standard”?

Just wonder historically how often that insurance firms find their calculations made by actuarists in an earlier age turn out to be very different at a later age. Any such example @wsb_investor?

I also want to understand the significance of investment holding segment.

Meanwhile a few notes and questions on the life insurance segment.

Market share in 3M21, 6M21 and 9M21 has grown from 8.8%, 9.0% to 9.2%

ANP increased by 32.0%. Investment-linked ANP increased by 42.2% --> Are investment-linked products more profitable? Does it mean more profitable products are growing faster?

Quarterly NBV (RM million):
1Q20 50.1
2Q20 35.0
3Q20 80.8
4Q40 73.1
1Q21 82.6
2Q21 63.9
3Q21 66.0

Can we say the NBV result is good considering it has grown QoQ despite 3Q21 was a lockdown quarter?

Besides 9M21 NBV at RM212.5 million versus 9M20 at RM 165.9 million means a 28% YoY growth. If the post lockdown 4Q21 can deliver stronger growth, may be we can see 2021 NBV touching RM300 million?

If apply the Allianz Ayudhya example shared by wsb_investor earlier, at 10X multiplier that will contribute ~RM3 billion market cap versus current MC at ~RM4.5 billion (inclusive of ICPS)

Among the analyst reports I manage to get hold, only Affin and RHB mention MFRS17. They are also more conservative with their TPs.

Affin expects a contractual service margin impact of 30% (what does it mean to book value, profit etc?)

RHB expects 15% to 20% drop in FY23 earnings, and 25% to 30% drop in shareholder equity. As pointed out by @wsb_investor, many analysts use PB or even PE valuation. All else being equal, a 30% drop in equity should mean a 30% reduction in intrinsic value. Say previously the value is RM5, the new value should be RM3.5.

However as earning decline is more gradual, ROE = earning/ shareholder equity will increase by around 13% if apply RHB figures. So all else being equal, a higher PB value is warranted?

The biggest problem is they never explain how they derive their estimate. This is like a guessing game.

In future civil servants can "purchase motor vehicle takaful coverage together with road tax renewal by way of an interest free Shariah compliant Qard loan facility that enables instalment payments via a salary deduction plan of up to 10 months"

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3211796

A logical extension of MYEG online road tax renewal. What is the implication for motor insurance market? Besides Allianz does not have Takaful license.

@dumpMoney, thank you for the useful reference!

@Investmon, thank you for the good input. I agree the bracket in the name implies restriction. However, at the same time I also don’t see it as a petty revenge for reasons mentioned earlier. The date of CCM's approval shows that Scientex anyway want to change the name after privatization.

I also agree with you that Daibochi does not have the balance sheet to acquire Scientex’s packaging business. I cited other methods just to illustrate that the best route for Scientex still lies in privatization.

The hurdle in the remaining 28% shares may not be that high if it's a strategic move. Of course, I have no way of knowing what is the price the other three funds have sought. But in the meantime, it’s in everyone’s interest to make sure Daibochi continue to prosper. The privatization could be put aside and revisited later.

This is where I hope the Daibochi board could be candid in the upcoming AGM. If they are willing to explain in details about the company plan, and to assure minorities that they work for the interest of all shareholders, it will help restore the trust. A virtual AGM, while not ideal, is not a hindrance to sincere communication too.

But on the other hand, if they just assume they could bulldoze all proposals through with Scientex votes, they may find resistance on resolutions where Scientex could not vote.

There has been precedence. In 2019 after acquiring 77% of Malayan Cement from Lafarge, YTL Cement was too arrogant to assume Related Party Transactions resolution would be duly passed. The RPT was voted down. After the incident the board had to explain to institution minorities and arranged another vote a few months later.

https://www.theedgemarkets.com/article/minority-shareholders-block-lafarges-rm35b-rpt-ytl-cement

Anyway it’s our rights and also duties as shareholders to raise relevant questions. Let’s look forward to the Daibochi Board being professional and responsible enough to provide the necessary clarity and assurance.

I don’t think the change of name is an emotional move. There are several clues that lend support to my reasoning.

First, we need to give credit to PJ Lim for growing Scientex into a great enterprise over the years. Successful entrepreneurs like him is unlikely to be distracted by petty revenges. Besides he should know his offer price is rather opportunistic. So couldn’t blame others for rebuffing his offer.

Second, shareholders with sentimental attachment to the Daibochi’s name are likely to be the descendants of the founders. They have already exited in 2018 by selling their stakes to Scientex. It’s hard to imagine Apollo, Samarang or Public Mutual being sentimental to the Daibochi name despite being long term shareholders. So if this is indeed a petty revenge it’s not hitting the right target!

Third clue lies in the date. As mentioned earlier the Scientex Packaging name has been approved by Companies Commission on Oct 29, while the takeover offer was still ongoing. The name change is probably planned well before the offer has been announced.

Forth, @Investmon you’ve just provided another clue by citing Great Wall. Scientex’s Great Wall subsidiaries are called Scientex Great Wall and Scientex Great Wall (Ipoh). By the same convention, Scientex should have renamed Daibochi as Scientex Daibochi.

By calling it Scientex Packaging it hints at a more central role. It implies Daibochi will become the vehicle for Scientex packaging business. But currently Daibochi is the smaller part of the entire packaging business. Such a prominent name seems inappropriate. Unless, of course, this is the precursor to more corporate activities in the future.

Fifth, although Scientex is famous in the packaging business, the name is associated with the upstream business as a prominent stretch film supplier. Daibochi is well known in the downstream converter business due to its long established portfolio of MNC clients. So the Daibochi name has intangible value that a valuation expert could actually put a figure on. There must be a compelling case based on a greater gain to justify writing off this intangible asset.

This is where we need to hear the full story from Daibochi Board. They should explain to all shareholders what is the game plan with all these moves, including the change in dividend policy. They need to come clean on their earlier endorsement of TA low valuation that assumes just 2% growth after 2026. It contradicts the new dividend policy which indicates desire to retain more earnings for investment, which in turn implies the Board seeing opportunities that can generate return above shareholders’ cost of equity.

If indeed the name Scientex Packaging hints at part of Scientex entities may come under Daibochi in the future, we need to know how Daibochi is capable to fund itself to acquire this larger beast.

Despite being a cash cow, Daibochi does not generate that magnitude of cash to take over Scientex multiple packaging entities. Purchase assets from Scientex in exchange of issuing new shares is a no no, as minority shareholders will veto. Funding through borrowing is risky as Daibochi becomes a highly geared. Or more straight forward, Scientex to acquire the remaining 28% shares in another offer in 2022, so that it can do whatever it wants with its entire packaging portfolio?

Those of you who have not sold your shares, let’s attend the AGMs and pose these questions. Although Daibochi directors are not in the position to explain on behalf of Scientex, hopefully from the way they answer we get a hint what could be coming.

@dumbMoney, thanks for pointing out the 10% limit on share buyback per year. I've overlooked.

Let me try to understand the dividend distribution calculation.

As of last quarter end the cash balance is RM210.76 million or about RM1.51 sen per share. Assume the cash value remains unchanged. Also further assume the scenario where dividend distribution is the full RM1.51 cash instead of just 20 sen. Then the NAV will be reduced from RM3.76 - RM1.51 = RM2.25.

When shareholders receive the RM1.51 cash, it will be at full value.

To do better than the RM2.45 market price today, the ex-dividend share price should be equal or higher than RM2.45 - RM1.51 (cash received as dividend) = RM0.94.

When if market price is reaches RM0.94, the NAV discount will be as wide as 1 - 0.94/ 2.25 = 58%.

Given current NAV discount is "only" 30+%, I suppose the discount will not go as deep as 58%? As long as the ex-dividend discount is less than 58%, in my thinking it will be represents an improvement over today situation.

Another way to look at the current NAV discount of 30+% is this. Today the market may impose a steeper discount on the share investment portion of NAV. But it also imposes a discount on the cash portion of NAV -- may be lesser discount, but there is still a discount nonetheless.

The cash portion of the discount can be completely eliminated if the cash is given back to shareholders. In that sense the overall discount will reduce through dividend distribution.

Just my way of looking at the situation. But I agree share buyback can be an efficient way to reduce discount because management can target the purchase price that helps to close the gap.

I'm appalled and at the same time amazed by the ingenuity of this answer!

It has subverted the meaning of share buyback.

In a transaction where investor A buys 100 shares from investor B, it also means investor B simultaneously sells 100 shares to investor A. Where is the "back" in the share buyBACK? Back to whom? There is no "back" here.

There is no change in the total number of shares in the market. Still 140 million shares.

Share buyBACK only happens when the company itself buys shares from investors, and BACK into the company as treasury shares.

The difference when iCAP buyBACK shares is the market supply of iCAP shares will dwindle. Fom 140 million to 139 million, 138 million, 137 million...

As the supply of shares reduces, the remaining shares in the market become scarce and therefore more valuable. The NAV discount will narrow accordingly.

Too complicated? Let's try another way.

CoL is only willing to pay for your iCap share at 30% discount to NAV. Since no buyer is more generous than CoL, the iCap share can only be sold at 30% discount at best.

But if iCap company itself is willing, stuffed with more than RM200 million cash, it can put in a buy order for 50 million shares of iCap at RM3.65. In other words, buy at zero NAV discount! The discount is eliminated immediately.

Still too complicated? Then don't buyback. Just return the RM200 plus million cash to all shareholders as special dividends.

Still too complicated? OK, how about manager just waives the fees on the RM200 plus million of cash sitting in the bank account? Show some mercy on the shareholders.

Unfortunately I don't think this is an issue of comprehension. Common sense has been subverted on purpose.

It reminds me of the tale of a smooth talking consultant. Whenever he fails to con he will try to confuse his way out.

For every successful new economy company like SEA Limited, I can quote at least two other mult-business old economy companies that are not doing well or have broken up. Latest examples include General Electric, once the most successful company in the world, which has just announced a three-way breakup. So is Johnson & Johnson which will be split into two. More prominent examples closer to home include Sime Darby which has spinned off its property and plantation arms.

No one in the forum have doubted the past success of Scientex’s property cum packaging business. But whether it represents a good personal investment instead of flexibly investing into pure plays at respective sectors is debatable.

No one has also said that Scientex will not do well due to “lack of focus”. But any shrewd entrepreneur, which I believe Scientex’s PJ Lim is one, will want to develop and retain the OPTION of spinning off a minority stake of a CONSOLIDATED packaging business.

When the timing is right, why not list a 25% of the consolidated, vertically integrated packaging business at a premium to raise cash for the property arm? In fact every management who is responsible to their shareholders should develop such strategic option, only to be called upon when time is right.

This is where I find the disconnect of certain views in the this forum. They downplay the prospect and value of Daibochi. They praise the brilliance of Scientex management. But they sidestep the inconvenient contradiction on why a brilliant Scientex management may want to acquire 100% of Daibochi which supposedly is worth a lot less. Why never give credit to Scientex management for their strategic move when the credit is due?

It’s funny that people who have purportedly accepted Scientex offer continue to show concern for the remaining minority shareholders, albeit from the sideline. When Apollo, Samarang and Public Mutual which collectively own more than 22% of Daibochi shares are not worried about the reduced free float, I as a small potato long term shareholder is definitely not worried.

Unless the reminder is targeted at those funds. In that case this forum is probably the wrong channel. Better talk to the fund managers directly.

The announcement says
~~
The proposed name, "Scientex Packaging (Ayer Keroh) Berhad" has been approved and reserved by the Companies Commission of Malaysia ("CCM") on 29 October 2021.
~~
https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3210807

Look at the date. The approval was received on 29 Oct, while Scientex offer is still outstanding.

The application could have been submitted, and definitely planned much earlier than 29 Oct. This was most likely coordinated between Daibochi board and Scientex. Daibochi board couldn’t possibly go it alone without the prompt and support of Scientex to use its name.

But both of them did not reveal the information in the offer document nor various other announcements during the offer period. As I guessed earlier, they have a grand plan. But they didn’t tell minority shareholders the full story.

The plan is probably best executed after Scientex has already privatized Daibochi. Unfortunately the privatization failed. Now Daibochi board has to seek shareholders’ vote on the name change. This time round the board better tell shareholders the complete story, and what is their game plan for the future!

Haha, Scientex Packaging. I didn’t expect Scientex to show its cards so soon.

Gone are the lame excuses for the privatization. Daibochi is indeed central to Scientex’s plan such that it will now bear its name. This is in line with my earlier suspicion that Scientex wants to consolidate Daibochi with its remaining packaging business first, and later spin off the entity through another IPO. Due to the failure of its privatization plan, Scientex has probably been forced to re-sequence the order of execution.

Now Daibochi will get Scientex’s name. But it will be odd if other Scientex's packaging businesses do not come under the aptly named Scientex Packaging. So what does it tell us? This is Scientex’s way of saying the remaining 28% shares in the hands of Daibochi minority shareholders are valuable to them!

Fear not about the change in dividend policy. It has been changed once in 2018. After Scientex acquired control, the previous dividend policy of distributing at least 60% of net profits was reduced to 30%. The next three years were followed by aggressive expansion, and jumps in earnings and revenues. MPP acquisition and RM100 million expansion were funded partly by internal cash conserved after cutting dividends.

The need to further revise the dividend policy shows that Daibochi management still sees continuous business opportunity and the case for rapid expansion. That should be slap in the face for TA which has previously assumed Daibochi’s growth rate will decline to 2% after 2026!

Daibochi has registered an impressive ROE of 19% in FY2020, and a still impressive 16% ROE in the pandemic year of FY2021.

Given shareholders’ cost of equity is only 9.13% according to TA, Daibochi has returned almost 10% above the hurdle rate. I’m OK to forego short term dividends if management can continue to compound the retained earning at a near 20% return per annum.

Just let Scientex and Diabochi management run the show. We minority just sit down to enjoy. We know Scientex has a 72% interest and will make sure the management works hard and don’t drop the ball.

In case they don’t act fair, we minority have the privilege vote against resolutions where Scientex is barred from participating.

"Material Litigation" as stated in today announcement to Bursa:

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3210840

"...the Board of Directors (“the Board”) of ICAP wishes to announce that on 18 October 2021, the High Court had dismissed the application for Judicial Review on the grounds that the Judicial Review was not a suitable mode to determine this dispute. The High Court did not make any determination on the issue of whether City of London Investment Management Limited (“CLIM”) is a shareholder of ICAP...."

Note the date. The High Court has already dismissed the application on 18 Oct. Why was the news not announced a month ago?

Why was it only announced after Minority Shareholder Watch Group wants to find out?

https://klse.i3investor.com/blogs/savemalaysia/2021-11-12-story-h1593809467-AGM_Watch_MSWG_wants_to_know_Icapital_Biz_s_judicial_review_status.jsp


The directors at iCap need to know they have a fiduciary duty to all shareholders. They should announce material information promptly, irrespective of whether it's positive or negative.

Haha, @Evelyn11 has removed her comments and gone. Yeah, please come up with a better excuse next time.

Haha, just because Top Glove had a reckless buy back strategy, share buyback is deemed bad. Tell that to the professional money managers investing in S&P500 companies!

Just because road accidents happen, you should just stay at home!

Haha. Earlier someone says investing in iCap is like investing in a piece of land. Be patient. Buy and hold it for long term. Shareholders will get richly rewarded.

Evelyn11 is more honest. She said "land investing" mentality is not enough. One must have the "right trading strategy". One must know how to sell high and buy low. Otherwise one can only blame on his own "poor investing skill".

Wow. iCap has become such a challenging investment!

Far more easier to buy a unit trust. It also makes me wonder, if one has such a good trading skills, why stay with iCap?

What a great defense for the iCap manager!

"it's all your faults. Don't blame me"

Finally the iCap manager is returning 20 sen to shareholders.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3210591

Is this a “GIFT” to loyal shareholders before the Nov 20 AGM?

This was only the second time dividend was paid since its listing. The last time when it paid a dividend was in 2013!

An investment fund does not need to pay dividend if the manager can invest the capital wisely. Unfortunately, iCap is not such a fund. The manager has been sitting a huge pile of cash for years waiting for a stock market crash. When the market finally crashed in 2020, the manager had been slow and only managed to put a small part of the idle cash to work. Therefore fund-holders continue to earn FD rate. In fact, worse than FD rate because they need to pay a combined management and advisory fee of 1.5% per year.

Returning 20 sen to shareholders is one step towards the right direction, but still not enough. Based on 1QFY2022 report, iCap short term deposit and bank balance is RM210.76 million, or RM1.51 per share. The 20 sen dividend is a far cry from the 151 sen it holds.

Latest NAV is RM3.76 per share. At today closing price of RM2.35, iCap holders suffer a discount of 1 – 2.35/3.76 = 37.5%!

It’s disingenuous of iCap manager to blame City of London for the discount. Anyone with basic stock market knowledge knows that if iCap manager were to return the entire RM1.51 cash per share to shareholders as special dividend, the discount will be immediately narrowed.

After returning the cash, the NAV will be reduced to about RM3.76 – RM1.51 = RM2.25, consisting almost entirely of shares. Even if stock market still applies a 37.5% discount, the remaining NAV will be valued at RM2.25 * 62.5% = RM1.41. But shareholders would have received a RM1.51 cash plus an ex-dividend share priced at RM1.41 = RM2.92, representing a 24% improvement from current RM2.36!

Instead of returning just 20 sen, why doesn’t the manager return all the cash to shareholders? The shareholders can then choose to keep the entire returned cash in their own FDs. Why should they pay an annual 1.5% fee for an FD investment that earns hardly more than 1.5%?!!!


If a shareholder likes the manager very much, he can use the special dividend to buy more iCap shares. Isn’t that good? Hard core iCap fans get to enjoy twice the action of iCap manager with the same amount of fund invested!

Of course, this suggestion will only work if iCap manager is willing to part control of the > RM200 million cash and the 1.5% annual fees that come with it.

If he is not willing to part control, may I put forward the second-best proposal?

Why don’t he just promise to rebate all the fees received from idle cash? In other words, just charge fund holders for money invested in stocks. Don’t charge fun holders for money invested in FDs! How about that?

While there is a one time reduction in STMB equity, I wonder what is the implication of ROE post IFRS 17.

Granted ROE may not be a useful indicator under IFRS4 since the definition of profit is misleading. But with a more realistic definition of profit under IRFS 17, can I say that after 2023, ROE becomes a true indicator on return on shareholders’ capital?

Given ROE = net profit/ equity, as long as STMB’s one-time equity reduction is larger than the fall in profit under IFRS17 (will profit fall much?), ROE will actually increase.

Currently STMB already has the highest ROE among insurers. What does it mean if it has an even higher ROE under IRFS17?

@wsb_investor, thanks for the explanation.

It’s quite technical, but let me try to rephrase to see if I get your points.

Under IFRS17, insurance liability = Contractual Service Margin (CSM) + Best Estimate Liability (BEL, which is equal to PV of cash flows)

Moving from IRFS4 to IIFRS17, BEL is (almost) unchanged for existing contracts. But CSM should have a positive value as it represents profits to be released in future years over the life of those contracts.

However, for single premium products sold before 2023, their profits have already recognized on Day 1. These profits have been booked under the retained earnings on the equity side.

To “restore” a positive value in CSM for products already sold before 2023, there should be a corresponding reduction in equity.

This is because in accounting, (a) equity + (b) insurance liabilities + (c) non-insurance related liabilities = (d) asset. Given that (c) and (d) are unchanged, the sum of (a) and (b) must be constant. When (b) is increased, (a) must be reduced accordingly.

Given STMB has higher single premium products, the effect will be larger.

But no such problems for ILPs where premiums are paid annually.

In fact you mentioned before, under today practice, costs are booked up front for ILPs. As a result, newly sold ILPs have the effect of causing losses rather than profits in the first year. Under IFRS17, will these costs be distributed over the contract lifetime too? If yes, would there be an opposite effect where cost before 2023 gets reversed under IFRS17?

Thanks for the input. Hong Leong has recently met with Syarikat Takaful management. This is their opinion today on MRFS17.

"Less concern with the adoption of MFRS17. We estimate the transition to MFRS17 accounting standard in 2023 would see earnings shrink by 11% (guidance: -15-20%) vs MFRS4 disclosure; that said, it will be applied retrospectively and the restatement of comparative financial information is required. Also, there will be a day 1 downward adjustment to retained profit for accounting modification on legacy single contribution certificates (book value is estimated to decrease by 20%). As such, MFRS17 ROE is anticipated to higher vs MFRS4 (+2ppt) but capital adequacy ratio (CAR) is poised to drop; however, the latter should stay above the 130% regulatory minimum and cash call risk is limited. In any case, the change in accounting standard does not alter the business nature and cash flow of single contribution products. Thus, we are now less concern with the adoption of MFRS17."

In other words, management guided that earning shrunk by 15% to 20% (HL expects 11%). The book value is estimated to decrease by 20% (versus Affin's estimate of 30%).

Although smaller figure but still sizeable. Not sure how much has been priced in by the market.

Wonder if Allianz would provide guidance too.

Look forward to your opinion. This is the first report I come across that quantifies the magnitude of impact.

@wsb_investor, i3 doesn't allow me to upload the link here. I've messaged you separately.

These analysts are just generalists covering financial sector. They are not actuarial people. I'm not sure whether they get their assumption from industry people or created out of thin air so that their revised TPs do not appear too far off from current market prices.

I hope to get some knowledgeable views to confirm whether this should be represented as a one time hit to profit comes Jan 2023; and are the order of magnitude of RM400m and RM600m hit to Syarikat Takaful and Allianz book value seem reasonable.

@Papayashot,

I recall the long discussion. There seem to be some forumers with good knowledge here. Hope they can share their view.

(4) and (6) are not contradictory. EV is the current way of valuing life insurers, though the disclosure is not required in Malaysia. According to Affin, in the future EV may be eliminated (but no final decision yet; still under debate).

So there are two sets of valuation method. Currently analysts use old valuation method. Maybank, Affin, Am and RHB all value Allianz Life by assigning EV to it. What Affin does is to assume the MFRS17 impact under the old valuation framework.

Affin Hwang has published a report on insurance sector on 8 Nov. Among others, it has touched on the transition from MFRS4 to MFRS17. The subject is very technical for me. But I summarize my key learnings for your comments.

(1) Life and Takaful players will be most affected. The upfront recognition of premiums received for longer duration contracts as income is no longer permitted under MFRS 17.

(2) Insurance liabilities will be measured at a ‘current fulfilment value’, (the current estimates of amounts the company expects to collect from insurance premiums and payout for claims, benefits and expenses, including an adjustment for the timing and risk of those amounts) along with the ‘contractual service margin’ (CSM) - that is, the expected profit for providing insurance coverage.

(3) The formats of income statement and balance sheet will change drastically.

(4) Embedded value (not required to be disclosed by Malaysia’s life insurers) may be eliminated under IFRS17.

(5) Affin has slashed its TP for Syarikat Takaful from RM5.60 to RM3.80. It expects “contractual service margin impact of 30% from 2023E retained earnings as the Day-1 impact of the MFRS 17 adoption.”.

Given Syarikat Takaful has ~RM1.2 billion retained earning as of 2020, does Affin expect a one time charge of ~RM400 million on 1 Jan 2023?
Given the annual PBT is only about RM400 million, does it mean an entire year of profit get wiped out?

(6) Affin also assumes a 20% reduction in the Allianz Malaysia's estimated EV of RM3 billion. TP is reduced from RM16.40 to RM14.00. Downgraded from Buy to Hold.

A RM600m Day 1 charge on Allianz?

Even though this is just reshuffling of accounting numbers, the magnitude is still mind boggling. Could it be that large for both firms? Do I miss out something?

Another steady quarter. The result is within expectation (though the share dividend and bonus issue are not). Although operating income and profit before tax are the lowest in the last five quarters, the management has explained the impact due to FMCO that started in 1 Jun. Asset quality remains solid.

Looking back at my own comments in Jun, I’ve underestimated how much further the valuation could go. While I thought the share price was no longer cheap then, it went up another 30% in the span of 5 months. @kywoo was right and I was wrong.

However, while I believe in the management; the company strength and asset quality; its steady increase in dividend payout; I’m still concerned that earning growth since 2QFY21 has not kept up with the remarkable share price growth. In fact the gross financing has reduced slightly to RM1,852 million. It remains to be seen whether the company could resume its growth in coming quarters.

As such I will not add, and in fact may contemplate taking some profit if the share dividend and bonus issue result in a euphoria.

I love to hear @kywoo's opinion.

The return of buy and hold investors

https://www.tradingview.com/chart/RXOKEilS/?symbol=MYX%3ADAIBOCI

Can shift the focus back to Daibochi business fundamentals. It’s in Scientex's interest that the company prospers. We just need to watch that it gets a fair deal from related party transactions.

Given its client portfolio and product innovation like sustainable packaging, the investment in organic & inorganic growths, the company intrinsic value can only grow over time. Any future interest from Scientex is nice to have. When it arises the company can be revalued based on the prevailing conditions. Most importantly a good company long term share price will be supported by its fundamentals.

@Zackmeiser, agree, but buy in stages. Recall the speculated kitchen sink that didn’t happen in last quarter. There is still a chance that management may impair Daibochi Myanmar. In last quarter report they said the “market uncertain and volatile”.

Page 98 of 2020 AR shows the book value is about RM25m, which is worth about 2 quarters of profits. But impairment is just an accounting treatment. It affects accounting profit but not real cash. Should they do impairment in future quarter it could present buying opportunity.

Anyway, if share price is low enough it could also lure long term investors who have earlier sold due to fear of delisting to buy back their shares. The announcement is just out. Scientex owns 71.789% as of last Friday.

@EVEBITDA, you’re too humble. This is just the opinion of a retail investor. It seems that you’re an industry veteran. It’s reassuring when you didn’t find flaw in the logic.

A minor point. Daibochi has a dividend policy “to distribute not less than 30% of the Group’s normalised reported annual net profit attributable to shareholders”.

Unaudited FY21 results show that EPS is 14.37 sen. Therefore the minimum dividend per share = 30% * 14.37 = 4.31sen.

So far it has only announced a 2 sen dividend in Q3. I believe it has not announced further dividend in order not to complicate the takeover exercise.

Assume the exercise is over by tomorrow, may remaining shareholders expect a minimum DPS of 4.31 – 2 = 2.31 sen?