Refer to Note 36.4.1(c) in the 2021 Annual Report:
"The Group is subject to commodity risk with respect to price fluctuations in coal markets and attempts to limit its exposure to fluctuations in commodity prices by increasing its use of alternative fuels and renewable energies.
From time to time, and if a market exists, the Group hedges its commodity exposures through derivative instruments at the latest when a firm commitment is entered into or known, or where future cash flows are highly probable.
There is no outstanding commodity contract and commodity derivative instruments as at year end, accordingly, the Group is not exposed to commodity price risk."

The statement seems to imply difficulty in hedging its coal exposure. There was no outstanding coal contracts as of 2021 year end. There was also no derivative financial asset in the balance sheet as of Mar 2022.

During 2020-21, bulk cement ASP was in the range of RM200-250 per mT. ASP increased 30% to 65% to RM330. However coking coal price chart showed it had more than quadrupled from below USD100 per mT to above USD400 per mT.

If 50% operating cost consists of coal and energy (can't find the data), you're right it will be a problem, at least temporarily.

@dragon328, since we last spoke about Malayan Cement, the share price has declined by almost 30% from its recent height.
The bulk cement price hit almost RM330 per ton earlier this year before declining a bit. So the company should be be able to pass on most if not all of the rising input costs.
The market probably expects a decline in housing activities (as reflected in property sector share price) and the much talked about infrastructure projects not happening soon. But given the consolidated market, current price probably offer good safety margin for long term holding.

True. We've discussed this point before. However, usually the full valuation can only be realized during M&A, where the buyers are willing to pay the full value for controlling stake. At normal times rational minority investors like EPF, who has no control over the company, are right to demand a discount as their margin of safety.
Similar behavior can be observed in other companies too, for example YTL Power. Based on the recent M&A case in the UK market, the full valuation of its UK asset alone is already a few times over its current market cap. Yet I believe the market is also rational to value the company based only on its dividend yield rather than more elusive asset valuation.
Personally, as a patient investor here, knowing the EV, NBV growth etc gives me peace of mind on the downside protection, while hoping for dividend to grow in the future. When that happens share price should follow. But it probably takes time.

Why did you say GE donated in a smart way? Why can't other insurers copy its way?
If the issue remains unresolved in time, what are the likely action by BNM? Stop them from underwriting new policies?

Back to the topic of foreign insurers being forced to dispose 30% stake/ donation. Let's explore a bit.

You mentioned AIA/Prudential/Tokio Marine/Zurich. Assume their combined size in Malaysia is double of Allianz. Currently Allianz's market cap is ~RM4.5b (inclusive of ICPS). At a similar valuation, these four foreign insurers' Malaysian business equity value should be around RM10b.

If they are to be valued at say 50% higher, a 30% stake will worth around RM10b * 1.5 * 30% = RM4b to RM5b range. Not a small sum under current market condition, but still doable. For comparison, the twenty odd Bursa IPOs in 2021 including CTOS raised a total of RM2+ billion.

Who could be the buyers? Local banks like Affin and Am Bank have trimmed their insurance arms. Not sure if larger banks, especially the bancassurance partners of these foreign insurers will be willing to pay premium to acquire stakes.

I suppose GLIC like EPF, KWAP, Khazanah have the capacity to take a slice or even as sole partner. But again are they willing to pay premium?

The negotiation over valuation will not be easy. Don't see why these local investors would like to pay premium for insurers given the competitive market, especially listed insurers are currently priced below EVs. On the other hand, the foreign insurers could not justify to their shareholders if they sell on the cheap. Perhaps that was the reason that Great Eastern donated RM2billion?

I see. It's quite counter intuitive. Normally when applying a low discount rate to future cash flows will result in a higher valuation. It seems that a lot of industry specific knowledge is required to get a handle on life insurers' valuation.

@dragon328, thank you for sharing your thought. It's very educational.

Your last point is very important. Even EPF is just another passive investor like you and me. We depend on Yeoh family to not only manage the underlying assets well, but also to share the fruits through improved dividends. If they do that, the share price could go higher. If they don't, even EPF could not do much about it.

Because of such consideration, in my view there are two types of valuation. One type of valuation if for controlling shareholders like the Yeoh family. They can value YTL Power value like how KKR values Northumbrian. They can exercise power over the company while others can't.

As minority investors have to ride on the goodwill of controlling shareholders, their valuation have to be conservative. That is probably why YTL Power share price is driven more by the dividend yield (which is tangible to minority shareholders) rather than company's asset values (don't know when they will be unlocked).

But as mentioned before, at current dividend yield the share price should have support. When the Group MD Datuk Yeoh talked to the press about under valuation it also sent a positive signal that they care about the share price (in some companies the controlling shareholders don't). Hope Datuk Yeoh can back up his words with not only good results but also better dividends.

I wasn't aware that there was a 70% cap on gearing. But it makes sense that regulator doesn't want utilities to take on too much risk.

Compare to Northumbrian, Malaysia utilities' valuation is a lot lower. However foreign shareholding in Tenaga remains low, and even lower if passive funds like Vanguard, State Street and Blackrock are excluded. I've also counted probably just one foreign fund on YTL Power Top 30 shareholding.

Their lower valuations should have adequately compensated for the regulatory risk (Tenaga) and currency risk (Tenaga and YTL Power). But why foreign funds shun these Malaysian utilities while they chase after more expensive assets like Northumbrian or ElectraNet? Are there other risks that are putting them off?

Based on what I can find, quite a few public listed life insurers in this region, with the exception of AIA, are priced below their EV!

They are not confined to Chinese insurers such as China Life or Ping An, where valuations are depressed. Take for example, The Edge Saturday edition on May 14 had a table extracted from Bloomberg showing Great Eastern and Prudential were sold at 0.53X and 0.88X P/EV respectively.

Why does the market place a huge discount on life insurers? And not just in Malaysia. Have I missed something?

RM3.5b EV is quite close to RHB's and Am Bank's estimate of RM3.3b.

I don't understand when the minutes say discounted at "risk free rate". Does it mean the future profits are discounted at 10 year MGS, which is about 4%, rather than a higher rate?

If discounted at 4%, the EV will be inflated. As a contrast, in page 69 of the AIA presentation I mentioned earlier, AIA adopted a 8.56% discount rate for Malaysia (4% 10Y gov bonds + 4.56% risk premium).

What are the implications?

@dragon328, the case becomes much clearer now with your explanation. Yes, I overlooked. The RCV multiplier should be in EV rather than MC.

I like the way you check using equity cashflow yield. If I understand correctly, after netting off the equity's share of capex, what remains should be the free cash flow right?

I have a side question. I'm curious about how KKR could justify its investment case.

Based on your calculation, the KKR's equity yield is 4.9%. Presumably most of it will be paid out as dividends. Future capital gain is probably limited, not unless KKR can sell the asset at an even higher multiplier than 1.5X RCV (RCV organic growth is probably in low single digit, in line with CK group's return).

However private equities like KKR usually aim for double digit return. That is after their fat fee! At least this is the expectation of typical PE investors. This is only possible through leverage.

However KKR's borrowing cost will have to higher than 10Y Treasury yield, meaning at least 3%. With 4.9% equity yield for Northumbrian Water, every dollar of debt that KKR takes on can only earns 4.9% - borrowing cost (minimum 3%) = 1+% at best.

Does it mean KKR has to use maybe 7 times, or even up to 10 times leverage in order to achieve a desired double digit return? It looks quite crazy.

Additonoal information can be found in another document.
"Ofwat commissioned EE to assess the premium to RCV on listed companies. Its decomposition analysis indicated a residual market premium over RCV of 1.04 - 1.08x in February 2020, once outperformance from factors such as totex, debt finance and ODIs was reflected"

In other words, the earlier expectation was a slight market premium over the RCV. Figure 18 in page 88 also shows historically valuation swinged from 20% discount to 30-40% premium, and the mean was at single digit premium.
https://assets.publishing.service.gov.uk/media/5eda1e5ee90e071b734d2ca7/Northumbrian_Water_Reply_to_Ofwat_response_27.05.2020_NON-CONFIDENTIAL.pdf

CK and Hutchison have strong balance sheets. It's unusual for them to sell assets on the cheap. The 17% discount in the deal probably shows the current market condition is probably quite unfavourable.

The document has further explanation on market value versus RCV
"If investors expect the company to perform in line with the regulatory determination (e.g. in terms of costs, incentives and returns) in perpetuity, then the MV of the business will be equal to the RCV, and the MAR would be 1. If investors forecast that the actual performance of the company would be different to the regulatory settlement, then the MAR could be greater than 1 (if investors expect to perform better) or less than 1 (if investors expect to underperform)."

According to company websites, Northumbrian Water serves 2.7 million customers, versus Wessex Water serves 2.8 million. They're probably in the same league. Northumbrian Water's valuation over its RCV (Regulatory Capital Value) could provide a guidance on how much Wessex Water is worth today.

Northumbrian's RCV can be found on page 53 of its 2021 Annual Report
"RCV at 31 March 2021 was £4,196.4m"
https://www.nwg.co.uk/globalassets/corporate/apr/annual-report-and-financial-statements-2020_21_final_1.pdf

Given KKR's transaction values the company at only £3,468m, the valuation put a discount of 1 - 3468/4196.4 = 17.4% on the RCV!

After the collapase of UK Power Networks deal, KKR acquired a 25% stake in Northumbrian Water. Based on the acquisition price, the company is valued at £3,468m.

I checked the OfWat ranking, Northumbrian Water is also quite high on the table, which may be positive for valuation.

However, according to Forbe's article below, the original acquistion cost was £2.4 billion in 2011. That means the CAGR return over 11 years is only 3.4%. I'm a bit surprised that the return is rather low.
https://www.forbes.com/sites/robertolsen/2022/07/15/kkr-to-invest-1-billion-in-british-water-company-owned-by-li-ka-shings-ck-group/?sh=33bd74827576

Not to mentioned on one year basis, Pound Sterling has depreciated by 16% against US Dollar (from 1.42 to current 1.19). Given HK Dollar is pegged to US Dollar, the gain for Li's HK based companies will be even smaller.

As shown in page 70-71 of the Yearbook, some of the GIs' combined ratios are quite close to 100%. Axa Affin General, which should have scale, is 99.82% (98.71% in 2020).
The best performer is Loanpac under LPI, where combined ratio is 60% (65% in 2020). I suppose it's helped by its dominance in fire insurance, where industry net claim ratio is only 41%, much lower than motor's 55%.
Fire net claim ratio is only 13% for Loanpac! Whereas Allianz General is as high as 70%.
Net commission ratio, Loanpac is 6%, versus Allianz General 15%.
Any idea why the huge discrepancy in performance?
No wonder LPI share price commands a premium despite limited growth prospect in the sector.

@EVEBITDA, yes, according to the list of conditionality published last month, the approval from all three ministries have already been obtained. The remaining conditions are for the vendor and purchaser.
This has greatly reduced the political risk, where the Parliament is dissolved before necessary approvals can be obtained.

Meanwhile, the Minister has mentioned LDP and SPRINT "concession will be extended for five to 10 years". In other words, up to to 2040-44 if necessary.

This would have provided sufficient buffer against uncertainty. Therefore even if 10Y AAA were to hit 5% (it's not), I don't believe 5% is a hard limit. I can't find any mention that crossing 5% the deal will fall through. Not sure where the 5% comes from.

But I'm interested to know at what level of yield (I believe higher than 5%) the financing could be in trouble.

RAM also stated that "If it performs to the Issuer’s expectations, the Proposed Sukuk will be fully cash backed by May 2033, against RAM’s expectation of May 2035 under the sensitised projection"

In other words, RAM expects Sukuk to be repaid shortly after the original concession period ends by 2030-34.

In May RAM has assigned triple A rating to ALR's proposed Sukuk. As of yesterday, 10Y MGS yield is 4.07% as mentioned by EVEBITDA. 10Y Corp AAA yield at 4.67%.

https://www.ram.com.my/pressrelease/?prviewid=5986
https://cweb.bpam.com.my/op/o4008.asp

I just realized I missed an important point.

The projected FCFF of RM2,536m by Litrak's management (page 60) includes government compensation for not allowing it to incresae toll.

However, ALR forgoes compensation which totals about RM2.31b ( =RM1.5b + RM1.62 * 50%, before converting to present value). Refer page 14.

On top of that, it needs to pay RM2.7b to Litrak upfront.

Therefore it will definitely need the extension of concession, and also a low borrowing rate to make the deal feasible. Just that it's unclear how low it has to be.

Am I right?

Refer to article below. The Work Minister said "For three highways [Kesas, SPRINT and LDP], the concession will be extended for five to 10 years, while [concession for] the SMART tunnel may be shortened, depending on the traffic data that will be reviewed from time to time"

https://www.theedgemarkets.com/article/highway-restructuring-concession-extension-three-highways-alr-shareholders-are-notforprofit

By allowing the concession to be extended as necessary, it lower ALR's risk that concession runs out before it could fully pay down its Sukuk. This may in turn improves the Sukuk's rating and lower the rate. But Minister only mentioned traffic volume as reason for extension.

Thank you for your explanation. Let me try to understand the logic.

Based on my understanding, Affin looked at Litrak existing capital structure and other parameters, and it determined Litrak's WACC was 7.95% (page 58).

Applying this discount rate to management projected FCFF, it arrived at an equity value of 2,165 + 371 = RM2,536m, which was less than ALR's offer of 2,326 + 452 = RM2,778m (page 60)

That means if ALR were to use the same projected FCFF, its discount rate will have to be lower in order to arrive at the larger equity value of RM2,778m. But since the value is not much larger, the discount rate is probably not lower than 7%.

Given that ALR's funding is probably 100% debt, as long as its Sukuk rate is below 7%, the financing should be secured, right?

@EVEBITDA, good to hear from you.
Yes, the market is forward looking. BNM's subsequent OPR hikes would have been priced in. Unless there is a major market turmoil in the coming weeks ...
I also remember in ALR proposal they could extend concession periods (by another 6 years or so) to cover potentially higher debt servicing. I hope that provides sufficient buffer.

According to the circular issued today (page 56), Litrak Group level cost of debt is 6%.
In your view, what is the upper limit of the Sukuk rate that will put ALR funding at risk?

After Affin's AmGeneral Insurance merges with Liberty Insurance, the combined entity will overtake Allianz General to become the largest motor insurer in Malaysia. Do you forsee a lot more competition on the general insurance side?
Some years back the industry combined ratio was above 100%. With the ongoing market liberalization, could GI become loss making again, at least in underwriting losses?

Yeah, overlooked. So AIA Malaysia NBV is 4 to 5 times of Allianz, and still growing fast, quite amazing.

If I understand correctly, it’s is like AIA sells more premium high margin products to a more affluent market, whereas Allianz sells affordable average margin products to the mass market.
An imperfect analogy could be Louis Vuitton versus Coach? One is luxury, and the other affordable luxury.
Both have similar NBV in 2021 (Allianz 275m versus AIA 283m), but Allianz’s NBV growth slightly outpace AIA over a 3-year period, although AIA grew faster in 2021 (at 26% versus Allianz 15%)

Talking about margin, based on Allianz Malaysia analyst presentation, the 2021 NBV margin was 40% (NBV 275.2m divided by ANP 687.2m)
How does it compare to the industry standard? I'm not sure where to get such info.

But I managed to get AIA data. Refer page 49. VONB margin in Malaysia was 57% in 2021, and was even higher at 60% in 2020. Why do AIA products enjoy a far higher margin than Allianz?

https://www.aia.com/content/dam/group/en/docs/results-day/AIA%20Group%20FY%202021%20Analyst%20Presentation%20Final.pdf.coredownload.inline.pdf

They are not comparable. You have to weigh the risk versus reward.
FD return is guaranteed. When was the last time a Malaysian bank failed to honor its FD commitment? Even if the bank fails, depositors are covered up to RM250,000.
On the other hand, it's not uncommon for such deals to fall through for a variety of reasons. The arbitrage trade is not without risk.
Gamuda and Litrak have just announced to extend deadline by 1 month. Even though I'm quite confident that the deal will go through eventually, I've sold off some shares to lock in profit.

@dragon328, yes, we've discussed about the UK regulatory asset being undervalued.

However, it seems that it's a market norm to heavily discount these asset heavy utilities. Not just YTL Power. LKS's son Victor Li, chairman of CK Asset Holdings and CK Infrastructure Holdings, also lamented their assets being undervalued.

It's not that professional investors don't see the potential. They probably want to be prudent, and focus on cash flow and dividends. If the company assets are sold for a fat profit in the future, and assuming the windfalls are indeed returned to shareholders as cash, count that as bonus. But these managers won't include the windfall into their valuation. When big players refuse to pay more for the shares, the share price remains depressed.

On the other hand, the controlling shareholders like LKS or Yeoh family could afford to view the values differently. This is because they call the shot. They can decide when to sell, what price to sell, and whether to distribute the sales proceed.

As retail investors, even long term ones, we have to set aside some buffer since we don't control the company.

Personally for me, as long as YTL Power continues to pay sustainable dividends (on the assumption that key businesses continue to do well), the downside is protected. I'm not be too concerned about share price. Any upside will then be a bonus.

Yeah you're right. Almost all of AIA ILP is classified under whole life, whereas Allianz is under endowment. With your explanation it makes sense now.

When I mentioned Etiqa Life has a high proportion of ILP, I refer to page 98-99 (section on new policies issued - individual). I focus only on new policies issued in 2021.
Under the sub-heading of total (for current year), under the Investment-Linked column, total premium = RM175,844,735 (single premiums) + RM520,438,603 (annual premiums) = RM696,283,338.
Under the Ordinary Life column (I suppose ordinary life means traditional products, right?), total premium = RM9,146,117 (single premium) + RM82,263,788 = RM91,409,905.
This is how I've arrived at the conclusion that Etiqa also sells a very high proportion of new ILP policies (RM696 million premium) as opposed to traditional policies (just RM91m premium)

I also check the section "Policies In Force at End of Year - Individual" under page 122-123.
For Allianz Life, the annual premium under "Ordinary Life" is RM1,528,13,953, versus RM2,070,966,065 under "Investment-Linked". Yes, the proportion of Allianz ILP (within in force policies) is higher, but not very much higher.
On the other hand, take Prudential for example. Annual premium under "Ordinary Life" is RM2,746,671,221. Under "Investment-Linked" is RM7,515,202,224. Prudential ILP (within in force policies) is almost triple the size of its ordinary life!
Even HLA ILP is more than double the size of its ordinary life.
It seems that the high proportion ILP is quite common across insurers, where some have a lot higher concentration of ILP.
Have I interpreted the data correctly?

@dragon328, thanks for the explanation. I agree with you that given that the spread between YTL Power dividend yield with MGS yield is large, the impact due to interest rate hike will be more modest.

Meanwhile, there is a piece of news which may shed some light on how regulated assets in UK fare in inflationary environment. Earlier Li Ka Shing's CK Infrastructure wanted to sell its UK Power Network (UKPN) to a consortium led by KKR and Macquarie. But at last minute CK raised the selling price due to inflation (and also currency movement). The deal collapsed. The action of raising price supports the notion that UK regulated utilities fare well with rising inflation.

(A difference is in UKPN case, its next 5-year regulatory period will start in 2023. So unlike Wessex Water it does not need to wait long for tariff reset)

The FT article explains:
Privatised infrastructure assets in the UK — including the electricity, gas and water networks — benefit from rising inflation because their returns are set by the regulator and linked to either the CPI or RPI index. The benefits generally outweigh the costs associated with rising inflation, such as staff, maintenance and materials, as the businesses are not labour-intensive.
Colm Gibson, managing director of Berkeley Research Group, said interest in UK infrastructure assets was likely to remain strong despite UK government threats to impose windfall taxes on parts of the sector such as oil and gas companies and electricity generators.
“Because utilities’ asset values and revenue streams are both indexed to inflation and backed by regulatory guarantees, these industries are regarded as safe havens by investors,” he said. “This is particularly true given the current inflation outlook.”

https://www.ft.com/content/62113516-4f4b-4a82-9e71-11845f56d65f

Actually I'm not sure whether the market is overly optimistic that UK government will not intervene. The government will risk public backlash if it allows utilities to profit too much from the public misery. Recall in May the UK government imposed a 25% windfall tax (though this is on oil & gas companies, not utilities).

Back in Malaysia, Tenaga share price has suffered greatly due to the market's doubt on Malaysian government's commitment to uphold the ICPT mechanism. Despite the government's pledge to compensate Tenaga for the under recovery, Tenaga cash flow will be strained. No one knows what happen in the next review 6 months later.

But comparing UK ro Malaysia, is the market justified in being pessimistic on Malaysian utilities assets while bullish on UK's?

I see. There seems to be a lot more considerations than profit alone when insurance companies push their products.

After reading you comment, I checked out the ISM yearbook for new policies issued in 2021. I found Allianz underwrote a lot of endowment policies than whole life policies. However the market leader Great Eastern has slightly more whole life than endowment. Is there a reason for their different emphasis?

The other point is, as you've mentioned in the past, Allianz sells a lot of investment-linked products which offers better margin. This seems to be a common industry practice. For the entire industry, the premium for new ILP was RM6.6 billion versus RM2.2 billion for traditional products.

In fact companies like AIA, Prudential and even Etiqa sold a much higher proportion of ILP. What is holding Allianz back from selling even more high margin ILPs like its peers? Does it have to do with agent commission factor too?

@dragon328, I once read that UK utilities in benefit from inflation as they can pass on the cost. However, how can Wessex Water pass on its higher cost such as higher borrowing cost? At least not until the next regulatory period right?

When interest rate rises, yield seeking investors may also demand higher yield from dividend stocks such as REITs and utilities. And YTL Power is considered a dividend stock. What do you think of this effect?

High end furniture chain RH slashed its 2022 revenue outlook.
https://www.cnbc.com/2022/06/29/rh-shares-slide-after-company-lowers-its-outlook-for-the-year.html

Am I right that from shareholders stand point, whether profits are recognized in early or later years does not change the overall profitability? The only challenge is year to year reported profit could be more volatile and obscure, making it difficult if shareholders who value the shares based on reported profit (since Allianz doesn't disclose its EV)

In what way are distributors affected? Isn't profit recognition concern only Allianz and its shareholders, and maybe the tax authorities? Do you mean the distributors are incentivized based on the Allianz's reported annual profit, such that distributors' incentives could be affected if profit recognitions are pushed out to the later years?

What do you mean by product design that is beneficial under IFRS17?
By benefit do you mean greater recognition of profits in the earlier years, but at the expense of lesser profit recognition in the later years? That is more like a matter of presentation.
Any example?

Does it really make a difference in the business? Wouldn't an accountant who has been working in the insurance sector for many years would have picked up sufficient actuarial knowledge?

Not just Vincent Tan, even CEO Sydney Lawrance Quays has been selling shares. Maybe the company is buying back shares to avoid dilution due to ESOS. But it gives the impression that top is selling while the company maintains the share price.

@wsb_investor, thanks for sharing . The top posts at Allianz Malaysia have undergone rotation recently, typical of MNCs. What's your view on the new leadership under Zakri, Sean and Charles?

WILMINGTON, N.C. — Rising inventories, orders placed months ago still in the pipeline softening demand are confronting furniture retailers with fresh challenges in the pandemic’s wake.

With so much product on hand and on the way the industry’s long overdue price increases could be at risk due to the potential for discounting to move goods. That’s particularly worrying since those price hikes were largely tied to increases in raw materials and transportation costs. With declining unit sales, potential discounting poses a particular threat to margins.

https://www.furnituretoday.com/furniture-retailing/retailers-grapple-with-a-shipment-tap-that-went-from-off-to-full-stream-too-quickly/

Apparently this stock has fallen off inventors' radar. There has been no more posting in i3 forum since my last comment made seven months ago. The lack of interest mirrors the low liquidity. This is expected given Scientex has mopped up all the shares from short term investors. Whoever remain are long term shareholders who refuse to give up their holding without a fair price.

Since the end of privatization, Daibochi (now Scientex Packaging) share price has retraced about 15% from RM2.70 offer price to RM2.31. This is partly due to compressed margin as a result of time lag in passing cost increase to customers; and partly due to short term investors/ speculators giving up on this stock.

Interestingly the industry problem seems to hit Scientex share price even harder. The parent company share price has declined about 30% from 52w height of RM5 to RM3.48 today.

Another interesting development is today Scientex, Apollo and Samarang have announced that they have exercised all their warrants just before the warrant expiry. The exercise price was RM2.50, which was higher than the current mother share price at RM2.31. Given the low trading volume, they have no choice but to convert at a premium to avoid dilution.

After the warrant exercise, Apollo has in fact increased its shareholding from 9.54% as of Nov 2021 to 10.30% now. Samarang has increased from 5.26% to 5.40%.

Despite exercising 16.7 million warrants, Scientex has only managed to keep its holding unchanged at 71.90%.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3271366
https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3271364
https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3271367

Another interesting fact is earlier Scientex has acquired the warrant at RM0.32. By paying another RM2.50 now, the effective price per share for Scientex is RM2.82, which is higher than its original share offer price of RM2.70. Not to mention that Scientex has also missed out the 5 sen final dividend paid on Jan 2022.

Altogether Scientex, Apollo and Samarang have paid an extra RM58 million in warrant exercise to defend their shareholding. They continue to see value in Daibochi. Clearly Scientex has not given up yet!

My impression is CSR spending is/ was mostly for YES which falls under telecommunication segment. I wonder if the management could take the opportunity of the Electranet one time gain to do some impairments of other projects. However it's not mentioned in the quarterly report.

Thank you for replying. I've read several analyst reports. The general consensus is 3QFY22 results is disappointing but Buy calls are maintained.

Maybank/ CIMB/ RHB/ HLIB say 9MFY22 results achieve just 30%/ 31%/ 43%/ 61% of their FY22 full-year forecast. They have expected more.

We've discussed about the weaker performance of YES and Wessex. However Maybank has also highlighted "higher investment holding losses and lower-than-expected associate contribution". So I took another look.

As your table has shown, the investment holding segment for Q3 records a PBT of RM904m. But the Electranet disposal gain was about RM1.3b (according to Hong Leong). Assuming the RM1.3b gain is pre-tax, it implies Investment Holding segment core PBT = RM904m - RM1.3b = about RM400m loss. The loss is quite substantial as past two years quarterly segment PBT is within the range of RM39 profit (4QFY21) to RM65m loss (1QFY22).

One reason cited by Maybank is "Associate income trended lower QoQ, possibly due to Jawa Power".

Jawa Power is a 57.1% owned subsidiary (Maybank considers it as associate). Based on annual reports, between 2017 to 2022, Jawa Power contributes about RM300m profit annually. So a weak performance at Jawa Power alone cannot explain the quarterly RM400m loss, unless Jawa Power has recorded a loss this quarter.

There could be other reasons that drag down Investment Holding segment performance. What do you think?

@Dragon328, thank you for the quarterly result analysis.
I have a few questions.
1. What is the meaning of "pool prices" in the Multi-Utilities business?
2. PBT for Water & Sewerage segment dropped due to "seasonality impacts". However, YoY PBT decline is even greater than QoQ (from RM145m in 3Q21 to RM89m in 3Q22). Unless the seasonality is not based on 12 month period?
3. The RM86m loss for telco segment is the largest loss over the last 8 quarters covering the entire pandemic period. This is not a good sign. Besides, as expected , Maxis Digi Axiata U Mobile are still dragging their feet despite cabinet decision to maintain the Single Wholesale Network. The dominant players won't let challengers like Yes to have an easy time. I fear a lot more capital has to be sunk into Yes until it can turn profitable, or better still, sold to one of these incumbents.

@wsb_investor, thanks for the explanation.

By the way did you read last week weekend edition of The Edge? There was an article about Great Eastern. According to Bloomberg data it quoted, currently market prices this leading life insurer at only 0.53 times price to EV. Price to book is slightly below 1x.

Do other life insurers in this region also suffer from low valuation? What might be the reason?

It's an industry wide decline. In fact, according to the presentation, "Market share 3M 2022 increased to 9.3% (3M 2021: 8.8%)."

I'm not sure why the industry is not doing well despite face to face meetings are returning to normal.

I'm not sure. According to Hong Leong, "tariff pricing is matched to Tenaga’s pricing (reviewed half yearly)"

Higher tax due to Cukai Makmur has been expected.

But the impact of higher fuel gas costs is unexpected. Among PGB four businesses, only Utilities have non pass-through input gas cost. Utilities gross profit has reduced substantially by over 70% YoY, from RM75m to RM22m.

Gross profits have also declined across three other businesses. But according to Hong Leong analyst, "PGB will be able to recoup back the higher fuel cast costs for its Transportation and Regasification segments in subsequent period"

Looking further ahead, need to watch out whether earnings will be reduced under RP2 (Regulatory Period 2) which runs from 2023 to 2025.

According to 1Q22 presentation,
Group Operating Revenue +6.3%
Group Gross Written Premium +9.5%
Group core profit before tax RM184.8m (versus RM130.7m in 3M21)

Both GI and life have recorded increases.

While the numbers look good, there are areas of concern in Life business.
New business value was RM59.1 million, decreased by 28.5%
This was mainly due to lower sales from agency, where agency ANP has decreased by 26.9%.

While current year profit has increased, it's the growth in NBV that will deliver the growth of future profits for life.

Is the decline in agency sales a temporary setback?

What is your view on the results?

https://www.allianz.com.my/content/dam/onemarketing/azmb/wwwallianzcommy/pdf/investor-updates/2022/2021_Q4AMBAnalystBriefing.pdf