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MARKET DATELINE
MALAYSIA EQUITY
Investment Research
Sector Update
Insurance
FSA To Spur Further Consolidation?
The proposed Financial Services Act (FSA) and Islamic Financial
Service Act (IFSA), the latest rules aimed at achieving a more stable
financial system, will extend beyond commercial banks to insurance
companies. When enforced, we expect both acts to make a huge
impact on the insurance industry, more so on takaful players like
Syarikat Takaful Malaysia (STMB) and MNRB's Takaful Ikhlas SB, than
ALLIANZ and LPI.
Potential impact from FSA, IFSA. The proposed provisions that will affect
the industry the most are: i) the requirement for composite players to convert
into a single insurance business, ii) the corporatisation of private Islamic
financial services companies, iii) the 50% ownership cap on Financial Holding
Companies (FHCs), and iv) supervision of FHCs. The overall impact will be felt more
intensely by Malaysia’s takaful players than their conventional counterparts.
That said, we expect the industry to react to the new regulations in ways that
may include: i) stakes selldown, ii) capital injection, iii) changes in company
structure, and iv) higher compliance, audit and personnel costs.
Promoting long-term growth. The proposed rules are meant to nurture and
promote the industry's long-term growth. In the near term, we see the FSA
encouraging further sector consolidation as insurance players strive to conform
to the conditions. Moreover, as the industry liberalizes, some players may have
to adapt sooner than others to prepare themselves for a more competitive
landscape.
NEUTRAL on sector. We remain NEUTRAL on the sector given the uncertainties arising from the regulatory changes. We note that in countries like Africa that have such rules in place, some companies’ licences were not renewed due to non-compliance as they had difficulty meeting the conditions of the new law. We are largely maintaining our forecasts as it is too premature to determine the impact from the proposed Acts. We upgrade our call on LPI (BUY, FV: RM15.75) due to its share price correction but downgrade MNRB (TRADING
BUY, FV: RM3.30) due to the uncertainty that will face Takaful Ikhlas in relation to the Islamic Financial Service Act (IFSA). Although STMB is also likely be
affected by the new ruling, we believe its large reserve funds and capital base may buffer the company against regulatory uncertainties compared with the smaller takaful players.
The Research Team +603 9207 7620 [email protected]
NEUTRAL
Stock Price Target Mkt Cap Volume ROE% DY% P/NTA Rating
MYR MYR USDm m Dec-13F Dec-14F Dec-13F Dec-13F 1-mth 3-mth 12-mth Dec-13F
Allianz Malaysia 7.42 8.02 380 0.047 5.3 4.7 12.6 0.9 2.9 15.6 49.8 0.8 NEUTRAL
LPI Capital 13.52 15.75 956 0.018 16.6 15.3 12.7 5.7 0.8 -2.0 -3.2 2.1 BUY
MNRB Holdings 2.72 3.30 187 0.527 4.8 4.5 10.1 9.7 6.6 -4.3 -3.7 0.5 TRADING BUY
Syarikat Takaful 5.68 8.00 299 0.025 8.3 7.5 21.0 6.0 4.9 4.3 167.3 1.7 BUY
PER(x) Rel. Performance (%)
Source: Company data, RHBRI estimates
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TABLE OF CONTENTS
TABLE OF CONTENTS ................................................................................ 2
FSA IMPACT ON THE INSURANCE SECTOR ................................................... 3
RECAP: FACTORS SPURRING TRANSACTION .............................................. 13
Will COMPETITION GET SUNNIER? .......................................................... G17
NON-INTEGRATION ANGLE ...................................................................... 19
OUR VIEW ............................................................................................. 21
FINANCIAL ............................................................................................ 22
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FSA IMPACT ON INSURANCE SECTOR
As the Act is yet to be officially enacted and the insurance industry
players are still having closed meetings and discussions with BNM, we
wish to advise that the comments below are our vas well as consensus
views. In addition, the scenarios and resulting market reaction
described below are merely our projections and should not to be taken
as actual facts.
Briefly on FSA/ IFSA. The FSA and IFSA will be the latest Acts aimed at
regulating and monitoring Malaysia's financial system. It will entail stricter
enforcement of group-wide risk and capital management on financial services,
as well as greater regulatory control over financial areas such as shareholder
control and core operations. The IFSA will particularly be the frontrunner of a
consolidated regulatory framework for the global Islamic industry. Both Acts will
serve as omnibus legislations and consolidate several Financial Acts that are to
be repealed upon the enactment of the Acts. The proposed Acts were passed by
the Dewan Rakyat in Nov 2012 and may come into force as early as May 2013
once gazetted.
The two new laws will extend beyond commercial banks by supervising
insurance companies, financial development institutions and companies under
Bank Negara supervision that offer Islamic financial services.
Figure 1 The repealed Acts
Repealed Acts
Repealed as per FSA
Payment Systems Act 2003
Banking and Financial Institution Act 1989
Insurance Act 1986
Exchange Control Act 1953
Repealed as per IFSA
Takaful Act 1984
Islamic Banking Act 1983 Source: Financial Services Act 2012, Islamic Financial Services Act 2012
FSA and IFSA may come into force as early as May 2013
Will the new rules apply to
companies under our coverage?
Allianz No
LPI Capital No
MNRB Yes
Syarikat Takaful Malaysia
Yes
Figure 2 Mandatory conversion of insurance businesses
Source: Financial Services Act 2012
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Segregation of LI/GI businesses. The FSA will prohibit insurers to operate
both life insurance (LI) and general insurance (GI) simultaneously. The same
conditions apply to takaful companies in regards to general and family takaful
operations via the IFSA. This is a direct impact to insurance/ takaful companies
holding composite licenses. The takaful industry will be more affected, as there
are more composite licences issued to takaful players compared to conventional
insurers. The ruling does not apply to the four takaful companies (out of 12)
that have just secured the latest family takaful licences (not composite ones) in
2010, which are AmFamily Takaful, Great Eastern Takaful, AIA-AFG Takaful,
and ING-Public Takaful Ehsan.
Figure 3 List of insurance/ takaful companies with composite licences
Name Ownership
Conventional
American International Assurance Foreign
Etiqa Insurance Local
ING Insurance Foreign
MCIS Zurich Insurance Local
Prudential Assurance Malaysia Foreign
Zurich Insurance Malaysia Foreign
Takaful
CIMB Aviva Takaful Local
Etiqa Takaful Berhad Local
HSBC Amanah Takaful (Malaysia) SB Local
Hong Leong MSIG Takaful Local
MAA Takaful Local
Prudential BSN Takaful Local
Syarikat Takaful Malaysia Local
Takaful Ikhlas SB Local
Source: BNM
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Five-year transition period. The proposed FSA and IFSA will allow affected
composite insurance/ takaful companies to convert into single insurance
businesses within five years from the enactment of the Acts. The Ministry of
Finance (MOF) or BNM may give the affected companies give more time to
comply, but this will be on a case-by-case basis.
Our View: This new laws may prod the affected insurance or takaful players
into setting up entities to manage their general insurance and life insurance
operations separately in order retain those businesses. If so, the composite
licences are likely to be relinquished and replaced with separate licences owned
by the potential subsidiaries. This is akin to Allianz Malaysia’s company
structure, whereby Allianz Life Insurance Malaysia (ALIM) and Allianz General
Insurance (AGIC) are separate entities with their own managements, boards of
directors and operating systems. Meanwhile, there is potentially an increase in
operating expenses to be incurred in setting up new subsidiaries and hiring
separate boards of directors, CEOs and other key management positions to
operate the new entities. There may also be increasing demand for actuarial
expertise. However, these costs can be spread over the five-year timeframe.
Moreover, we believe the separation of insurance/ takaful businesses under
different managements may result in stronger and sharper business focus and
may actually promote industry growth over the longer term. The ruling
governing this was intended to clearly distinguish the GI and LI funds.
We note that the new rules trend pretty much in line with insurance laws
globally. For instance, Africa has rolled out similar insurance rules requiring all
composite companies to have separate entities by 2014. According to news
reports, the new law aims to cut down on instances where composite insurers
divert their long-term life insurance investments to plug short-term cash flow
gaps arising from general business claims, which had adversely affected the life
insurance business. Some companies have reacted to this ruling by merging or
consolidating under a holding company. Examples of this are the merger
between Insurance Company of East Africa (ICEA) and Lion of Kenya, while
some others may be in the midst of selling off their businesses.
The same rules apply in India, which also imposes a condition that insurers
must list on its stock exchange. This is, however, currently not a requirement
under Malaysia's FSA.
The FSA is also likely to spur further industry consolidation moving forward.
Assuming that the affected industry players chose not to wholly pass on the
cost upside to their customers, the smaller players that are unable to absorb
those costs may be forced to consolidate.
BNM is giving companies five years to
adjust to a single insurance business
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Figure 4: BNM has the power to exercise oversight on financial groups
Source: Financial Services Act 2012
FHC not spared from BNM's purview. Similar to the conditions applied to
banking institutions, financial holding companies (FHC) within the insurance
sector will likewise be subjected to stringent regulatory oversights by BNM. This
also includes entities under the governance of the Labuan Financial Services
Authority. Clause 115 empowers BNM to impose prudential standards on FHCs
as part of its efforts to have greater power in containing systemic risks and
encourage corporate governance. FHCs may be required to fulfil certain
financial requirements, akin to banks and insurance companies, such as capital
adequacy ratios (CAR), liquidity, insurance funds, reserve funds and related
party transactions, amongst others.
Our View: All insurance/takaful companies with FHCs will be affected, but
prudential requirements could be different from those governing the banks/
insurance companies as the regulators may decide on exemptions or
modifications to the FHCs’ compliance requirements. In addition, BNM has
imposed and may impose anytime differentiated prudential requirements on
each insurance company and their FHCs to reflect their group-level risk
exposure. One example is the internal target capital level (ITCL) requirement
which subjects a FHCs’ investments in other corporations engaged in finance-
related services to BNM approval.
Applicability of ruling on companies under our coverage
Allianz Yes
LPI Capital Yes
MNRB Yes
Syarikat Takaful
Malaysia
Yes
Like banks, FHCs in the insurance sector will
be subject to BNM oversight
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Figure 5: FHC requirements
Source: Financial Services Act 2012
However, a constraint on the degree of control remains. The FSA requires
an entity which has an aggregate interest of 50% or more in the licensed
insurer, or has control over the management of the company's decision-making
process, to apply to BNM for FHC status. This aggregate interest is the sum of
legal, beneficial, direct and indirect interests held. Under Clause 113 of the FSA,
financial institutions are allowed to have more than one holding company
(subject to BNM approval), but the holding company must not be a licensed
holder of a banking or insurance business.
Our View: We believe this will restrict the industry’s M&A options as the size of
acquisition stake is limited if a single buyer does not intend to become a FHC.
BNM may likely impose further "material" requirements on top of the conditions
set out in the Act, judging from the actions of central banks in the region.
For instance, Indonesia's banking rules unveiled in mid-2012 impose a similar
condition, but at a more stringent 40%. It also requires corporations that want
to buy a 40% stake in an Indonesian lender to also hold ownership in the bank
for at least five years.
Malaysia’s insurance industry has gone through major consolidation in the past.
In our opinion, the FSA is also likely to spark off more consolidation, but at a
tangent. The size of the deal could be affected if the single buyer is constrained
by the 50% FHC limit; otherwise, multiple "friendly" buyers could take up the
remaining stakes, but issues of who is to support key decisions by the FHC may
arise, as highlighted in a Focus Malaysia article.
Will this ruling apply to companies
under our coverage?
Allianz Yes
LPI Capital Yes
MNRB Yes
Syarikat Takaful
Malaysia
Yes
Will the FSA change the outlook for M&As in
Malaysia's insurance and financial services sector?
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On FHCs within a financial group, the proposed Act allows multiple FHCs to be
formed within the group, provided that those entities do not conduct financial
services business. Clause 280 allows existing FHCs to retain their status as
FHCs. However, if the FHC-approved status was premised upon the Insurance
Act 1996, they will have to reapply to BNM for FHC approval within a 12 month-
period. Newly-set up FHCs will also have to submit the application to BNM at
the same stipulated time. Overall, the new conditions set upon the FHCs and
their requirements could potentially increase compliance costs.
Figure 6: Individual shareholding requirements
Source: Financial Services Act 2012
Individual shareholdings capped at 10%. The FSA stated that individuals
can hold a maximum of only a 10% interest of a licensed financial corporation.
The major change is that the FSA stated clearly for computation based on
effective shareholding.
Our View: This is a move that affects all individual shareholding but does not
significantly impact the companies under our coverage. The change of
computation from deemed interest (as per the Company's Act 1965) to
effective interest could result in cases where individuals were deemed not to
have >5% interest based on the Company’s Act 1965, but may exceed 5%
using the effective interest method. In this case, Clause 279 allows the
individual six months to submit documents to be specified by BNM.
If the individual has an effective shareholding of >10% prior to the enactment
of the FSA, Clause 279 allows a maximum of five years (from the enactment of
the FSA) for the individual shareholder to pare down the effective stake to 10%
to comply with Clause 92. This means that should there be a stake pare-down
from the individual shareholders, the five-year period should serve as ample
time to avoid any stock market overhang.
Based on a recent article in Focus Malaysia, this clause may spark off a
selldown of stakes amounting to as high as RM19bn among prominent
individual shareholders in Malaysia’s banking and financial services industry.
The figures singled out are Datuk Khatijah Ahmad, Tengku Datuk Noor Zakiah,
Tan Sri Azman Hashim, Tan Sri Quek Leng Chan, Tan Sri Teh Hong Piow and
Hwang Lip Teik, who are either founders or substantial shareholders of major
banking corporations. We also note that Tan Sri Teh Hong Piow is a substantial
shareholder of LPI Capital, an insurance stock under our coverage. The 10%
cap was in fact introduced under the Banking & Financial Institutional Act 1989
(BAFIA) as a measure to curb the surge in non-performing loans (NPL) due to
the collapse in bank lending and lack of control over individual shareholders,
but was reinforced under the FSA.
Applicability of ruling on companies
under our coverage
Allianz n.a.
LPI Capital n.a.
MNRB n.a.
Syarikat Takaful Malaysia
n.a.
Individual shareholdings are calculated
based on effective interest, capped at 10%
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This is in line with some of the regional changes in central bank regulations.
Bank Indonesia, for example, unveiled its own banking rule for the country in
July 2012 to cap the ownership of individual stakeholders of financial
institutions to 20%-30% from 99% previously.
Africa had similar rulings rolled out much earlier since 2009 at around 25%
individual ownership cap, with a 3-4 year transition. Based on news reports as
at Feb 2013, about 15 out of 47 African-based insurance companies are finding
difficulty to renew their license as the major individual shareholders have failed
to abide to this ruling. The law forced them to either sell the stakes or merge
with others to dilute their shares. Apparently, some of these companies had
failed to attract a group of investors to help comply with this requirement.
Figure 7: Shariah requirements
Source: Islamic Financial Services Act 2012
Power to regulate Shariah committee. The IFSA mandated BNM to regulate
the Shariah committee as well as prescribe standards on Shariah governance.
Furthermore, the Act now imposes the importance of Shariah compliance for
any companies operating a Islamic financial services business.
Our View: While it is already an industry practice to have a mandatory Shariah
board representation for Islamic financial activities, the issue of the conversion
to single takaful businesses as prescribed by Clause 16 may cause
complications for composite takaful companies in terms of setting up separate
Shariah boards within the five-year transitional timeframe. Fortunately, Clause
30 of the IFSA allows provision for the affected takaful companies to maintain a
single Shariah committee, and therefore we view this as a low risk given that
sound takaful companies may unlikely require changes to the composition of
their Shariah boards. However, we would highlight that maintaining a single
Shariah Board will still be subject to approval from BNM.
Applicability of ruling on companies
under our coverage
Allianz No
LPI Capital No
MNRB Yes
Syarikat Takaful Malaysia
Yes
BNM may allow composite takaful
companies to retain a single Shariah
committee even as they convert into single
takaful businesses
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Figure 8: IFSA requirements to corporatization of private takaful players
Source: Islamic Financial Services Act 2012
Corporatising private takaful companies. The IFSA mandates companies
operating Islamic financial services or takaful businesses to become public
companies. Only retakaful operators are exempt from this ruling. Private takaful
companies affected by this ruling will have to convert within 12 months of
IFSA’s commencement.
Our View: Takaful Ikhlas SB and HSBC Amanah Takaful (a non-listed takaful
player) are likely to be impacted from this ruling. Given the short adjustment
period for private takaful companies to abide by this ruling, we believe BNM will
soon issue recommendations on this as the IFSA empowers the central bank to
determine the form of establishments to be undertaken by Islamic financial
companies.
Figure 9: Requirements for appointed actuary solidified at GI and takaful level
Source: Financial Services Act 2012
Tighter requirements for appointed actuaries. Under the FSA and IFSA,
the requirements for the appointment and cessation of appointed actuaries are
solidified at the level of GI businesses as well as takaful operators.
Our View: This demand for actuarial expertise will rise in tandem with the
separation of insurance businesses, whereby separate actuarial departments
are required to be formed. However, we are concerned whether this will give
rise to a mismatch between the regulator's actions against the availability of
actuaries. As the industry sector is already experiencing an acute shortage of
actuaries, this could negatively impact on the industry moving forward. We note
that there are about slightly more than 100 qualified actuaries in Malaysia, of
whom probably less than 10 are qualified Bumi actuaries.
Applicability of ruling on companies
under our coverage
Allianz No
LPI Capital No
MNRB Yes
Syarikat Takaful
Malaysia
No
The IFSA mandates that private takaful
companies must convert into public company status
We are concerned about whether the pool
of qualified actuaries is sufficient to meet
this demand, along with the single
insurance business ruling.
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Figure 10: New requirement on compensation of claim amount (Family Takaful)
Source: Islamic Financial Services Act 2012
Legislated regulations on claims amount for family takaful. Under the
IFSA, a takaful claim has to be paid by the takaful operator within 60 days of
the notification of a claim. Breaching this ruling will result in the takaful
operator paying a minimum compensation at the rate of the investment yield of
the participants' risk fund (PRF) and an additional 1% paid from the
shareholders' funds, or such other rate specified by BNM.
Our View: We believe that this is already a current industry practice. However,
the fact that this requirement is expected to be legislated under the IFSA may
prompt takaful companies to be more stringent with their claims settlement
processes. Breaching this process may necessitate the need to dip into the
shareholders' fund for compensation when the risk funds could still be in a
surplus position.
Figure 11: Clarity on customer disclosure and misrepresentation
Source: Financial Services Act 2012
Promoting consumer awareness. One major difference between the FSB and
the repealed Insurance Act 1996 is the enhanced clarity on the duty of pre-
contractual disclosures and misrepresentations. With the FSA, insurance
companies will take on greater responsibility in providing specific questionnaires
to the customer and guiding their decision to accept insurance contract risk or
not. Customers, on their part, are equally responsible to ensure that their
answers do not misrepresent, failing which there are provisions that allow the
insurance company to forfeit the customer’s claim. For example, in the case of
general insurance contacts and life insurance contracts of under two years, if
the customer had deliberately misinformed or neglected to reveal the true facts
that could affect the policy, the FSA allows the insurer to refuse the
policyholder’s claims.
Family takaful claims are legislated.
Breaching this ruling may necessitate the
need to dip into the shareholders' fund for
compensation when the risk funds could still
be in a surplus position.
Insurers are given more responsibility to
guide customer disclosure, but customers
are similarly given more responsibility to
avoid misrepresentation
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Our View: We see this as a positive for insurance companies which prioritize
consumer awareness. Through effective efforts in raising consumer awareness
and guidance in helping them purchase the right product (through quality
agents or bancassurance sales personnel, for instance), customers would be
encouraged to understand their responsibilities in purchasing insurance
contracts that truly reflect their risk profile. As some insurers may be less
prepared than others, the FSA allows the industry time to adjust and we believe
the conditions will come into force only at a later date.
Summary. While BNM may at any time unveil more details or
recommendations on top of the FSA guidelines, we believe the FSA will enhance
liquidity in the sector and promote further consolidation. Thus, we expect to
see: i) stake selldowns, ii) further capital injection, and iii) changes in
companies’ structures to fulfill the single insurance business requirement as
well as the corporatization of private Islamic financial companies.
However, we remain wary on the efficiency with which the regulators will
ensure compliance, as well as the industry's response in adjusting to the
rulings. Similar rules have been implemented in Africa, where insurance players
have encountered difficulties that we believe have to a certain degree adversely
affected the industry's growth.
Also, we remain concerned over the industry's need for human capital,
especially the lack of technical expertise in the takaful sector, actuarial talent,
and Shariah boards, which could affect new hiring costs.
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RECAP: FACTORS SPURRING TRANSACTION
Regulatory changes pave the way for consolidation. We have seen a
surge in M&A activity among insurers and financial institutions in the past few
years. This phenomenon was supported by deregulation effects, which
commenced around 2009, and the subsequent liberalisation of the financial and
insurance industries in line with the recommendations of the Financial Sector
Master Plan.
The regulators have recently been in the midst of amending guidelines on
insurers regarding their operating costs, agency expenses and data processing.
The Competition Act could potentially play a part in restricting certain practices
that the Commission deemed as anti-competitive or disrupting market forces,
such as price-fixing or colluding. The Life Insurance Association Malaysia (LIAM)
recently applied for exemptions from the Act to be able to continue their efforts
to introduce self-regulatory guidelines to promote healthy competition amid the
changing regulatory landscape.
To date, we believe many corporations are still seeking clarity for firm
compliance processes with the new FSA, the Competition Act and the Personal
Data Protection Act (PDPA). What is certain is that the penalty figures imposed
on a corporation breaching any of these guidelines can be substantial, for
instance with a maximum of RM300k imposed from PDPA and an even more
devastating penalty from the Competition Act of a maximum of up to 10% of
group global revenues.
Figure 12: Major regulatory movements
Date Description
2009RBC framework. Insurers must fulfil an individual target capital level (ITCL) which is sufficiently higher
than the 130% minimum CAR requirement
Relaxed foreign shareholding limit from 49% to 70%. There are considerations to allow limit beyond 70%
on a case-by-case basis
Uplifted restriction on branch establishment and bancassurance tie-up imposed on locally-incorporated
foreign insurers
More flexiblity to employ foreign talent
2010 Granting of new licenses
Issued 4 new takaful licenses (GE, AIA AFG, ING Public and AmTakaful)
2011 Mandatory sharing of Malaysian Motor Insurance Pool. MMIP is a pool catered for a high-risked motor
insurance segment that cannot be obtained by insurers. The public would be able to obtain motor cover Improvements in motor claims settlement process, as deemed by the New Motor Cover Framework
2012Planned gradual upward adjustments in motor tariffs effective 16 Jan 2012 over 4 years, as deemed by
the New Motor Cover Framework.
RBC framework for Takaful introduced
Competition Act 2010 came into force
2013 Personal Data Protection Act (PDPA) came into force
Pending FSA and IFSA to be enacted
Phasing out voluntary cession agreements with local reinsurers
Gradual liberalization of operating expenses
Full detariffication expected in 2016 Source: RHBRI, BNM
The Financial Sector Master Plan aims at
promoting healthy competition in the sector
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Figure 13: Consolidation trend of LI and GI insurers 1987 1990 2000 2006 2007 2008 2009 2010 2011 2012
Life 18 18 17 16 16 15 16 15 15 15
General 57 54 46 34 33 33 31 30 28 26
Direct insurers 60 57 53 42 41 41 40 39 37 35 Source: RHBRI Estimates, BNM
Foreign players leveraging on globalisation. Foreign players have
witnessed the potential growth of the insurance markets in the Asian region and
have long expressed strong interest in expanding into the region. Moreover,
some of the international insurance players have recently shed their non-core
operations for various reasons, including boosting their capital along with the
proposed Basel III requirements as well as shoring up reserves for expansion
into profitable businesses. For instance, Aviva and Sun Life sold off their non-
profitable US annuity business units for approximately USD1.8bn and
USD1.35bn respectively. With the recent central banks' regulations governing
the single insurance business ruling and ownership structure of insurance
companies, foreign players may have more incentive to look into M&A in the
emerging markets region.
Figure 14: Global insurance sector’s volume of M&A deals 2011-2012
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-11
Sep
-11
Oct-
11
Nov-1
1
Dec-1
1
Jan-1
2
Fe
b-1
2
Ma
r-1
2
Apr-
12
Ma
y-12
Jun-1
2
Jul-1
2
Aug
-12
Sep
-12
Oct-
12
Nov-1
2
Dec-1
2
USDm
Deal value (LHS) No of deals (RHS)
Source: RHBRI, Dealogic
Values insurers look for. Based on our analysis of notable M&A transactions,
we believe that insurers are emphasising on several factors which include i) the
value of the bancassurance channel structure, ii) direct access to a takaful
licence, iii) diversification in product range and geographical reach, iv)
economies of scale and the need for scale, and v) strategic fits to fulfil
regulations, with the role of strengthening the insurance industries in the
region.
Total global insurance deal volumes
in USDm are as follows:-
1H2011 42,668
2H2011 25,366
2011 Total 68,034
1H2012 16,280
2H2012 37,917
2012 Total 54,196
The surge in Dec 2012 was mainly
attributed to Ping An Insurance and
the divestment of US businesses.
Bancassurance synergies, takaful licences
and economies of scale are among key
factors acquirers seek.
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Figure 15: Recent transactions in the insurance industry
Date Acquiror Acquiree Acquisition Cost
(RMm)
PBV Multiple
(x)
Comments
Dec-10 ACE INA Jerneh Insurance 523.2 2.25
May-11 Fairfax Pacific Insurance 216.5 1.71
May-11 Sompo Japan Berjaya Sompo 496.0 3.35
Sep-11
Zurich MAAB 861.0 3.13 Does not include MAA takaful. The transaction
costed about RM345m while Zurich had
planned to inject RM516m into MAA's capital
Sep-12 Tokio Marine MUI Continental Insurance 180.2 1.14
Sep-12 AMMB Kurnia Insurans 1,630.0 2.09
Dec-12 (proposed) Sanlam P&O 270.0 2.46
Dec-12 AIA Group ING Insurance 5,100.0 2.17 Equivalent to 1.8x EV. Has takaful licence
Jan-13 AMMB AmLife (Friends Life) 245.0 1.68 Has takaful licence
Jan-13 Khazanah, Sun Life CIMB Aviva 1,850.0 3.19 Equivalent to 2.4x EV. Has takaful licence
Weighted Average PBV multiple 2.42 Source: RHBRI Estimates, Company
Gaining market share and solidifying brands. Some of the largest
transactions had propelled insurers to the top of the league within the LI or GI
markets in terms of gross written premiums. AIA-ING boasts the largest
combined force of 16,600 agents as well as a 2.6m customer base in the LI
market. Meanwhile, AmG Insurance has just surrendered its GI licence and now
come under Kurnia's existing license. The new entity, renamed as AmGeneral
Insurance effective March 2013, is the biggest GI player in Malaysia, with an
estimated 13% market share by gross premiums.
Figure 16: Changes in market share based on gross premiums written (2011)
Title:
Source:
Please fill in the values above to have them entered in your report
10.9
%
13.3
%
24.2
%
1.5
%
3.3
%
4.7
%
2.7
%
0.7
% 3.4
%
5.2
% 8.2
%
13.4
%
1.8
% 5.4
%
7.3
%
*Kurnia is now known as AmGeneral Insurance
Source: RHBRI Estimates, BNM 2011 data
Our estimates of the combined entities'
market share in either the LI or GI market
(assuming premiums are unchanged from
BNM's 2011 data) are shown by the gold
bars
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Figure 17: RHBRI estimates of top 10 general insurers by premiums*
Title:
Source:
Please fill in the values above to have them entered in your report
31.09%
3.77%
3.82%
3.93%
4.71%
5.18%
7.27%
7.55%
9.17%
10.12%
13.39%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%
Others
CHARTIS
BERJAYA
ZURICH
ACE-JERNEH
LONPAC
TOKIO-MUI
MSIG
ETIQA
AGIC
KURNIA
*Kurnia is now known as AmGeneral Insurance
Source: RHBRI Estimates, BNM 2011 data
Figure 18: RHBRI estimates of top 10 life insurers by premiums
Title:
Source:
Please fill in the values above to have them entered in your report
5.56%
2.13%
2.81%
3.13%
3.45%
4.47%
4.50%
5.80%
16.28%
24.21%
24.55%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%
Others
MANULIFE
AMLIFE
TOKIO MARINE LIFE
ETIQA
ZURICH
ALLIANZ LIFE
HONG LEONG
PRUDENTIAL
AIA-ING
GREAT EASTERN
Source: RHBRI Estimates, BNM 2011 data
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WILL COMPETITION GET SUNNIER?
Sun Life's maiden foray into Malaysia. The latest transaction of CIMB Aviva
will see UK-based Aviva passing the baton to Sun Life, the third-largest
Canadian insurer, which has yet to venture into Malaysia prior to the
transaction. Sun Life and Khazanah joined forces to purchase 98% of the joint
venture at a transaction value of RM1.8bn or USD600m. The transaction entails
a new 20-year exclusive bancassurance agreement that will allow Sun Life to
cross-sell its products via CIMB's strong network of 312 branches with an
estimated reach to 8m customers.
What Sun Life brings in. Sun Life has a long history of providing protection
and retirement-based products, as well as asset management services in North
America. In 1919, it was the first Canadian insurer to offer group insurance. It
subsequently ventured into the health and accident insurance segments in
1956. Sun Life has been ranked among the top insurers for its retirement plans
in North America. Its Asian operations have shown considerable progress, with
its Indonesian venture already picking up pace and it is also ranked top in the
LI market in the Philippines. Assuming Sun Life replicates its core product
offerings in Malaysia, we believe it will be in direct competition with the nation’s
top life insurers, such as instance AIA-ING, which has a leading market foothold
in the employees' benefit business.
AMMB looking for a strategic partner. Earlier this year, AMMB completed a
repurchase of the remaining 30% stake of its life and family takaful business
units from Friends Life FPL Limited. It was given a tight deadline to seek out a
strategic partner for the said insurance units. Appointing Morgan Stanley as its
adviser may help AMMB accomplish the stake sale by June 2013. AMMB has
already fielded interest from several parties. No details have been disclosed,
but we will not be surprised if the interested parties are the same bidders which
did not succeed in the deal for CIMB Aviva, namely Prudential and Manulife. We
note that Manulife Malaysia has yet to own a takaful license.
We see AMMB's deal value as the next wildcard. Although we are of the
view that CIMB Aviva’s total transaction value of RM1.8bn, which is 3.2x PBV, is
relatively expensive, we do not think that will by itself re-rate the industry’s
valuations. We think it could partly influence the pricing in AMMB's selldown.
The latest press reports suggest a deal size as large as RM500m, assuming a
51% stake sale, which will only value the entities at 2.1x BV. However, we
would not be surprised if the deal struck with a strategic partner for AMMB’s LI
unit may be priced closer to CIMB Aviva’s valuation, despite not having the
scale in terms of branch network vs CIMB’s 325 branches.
The deal may be priced along similar terms, which are: i) the ~200 branch
network and a sweetened long-term bancassurance agreement, ii) access to
takaful licences, iii) the added advantage of cross-selling to 500k MBf card
customers, as well as Kurnia’s GI (now AmGeneral Insurance) 4m policyholders
base, and iv) the eventual buyer may also gain an international customer base
via AMMB's strategic partnerships with ANZ in areas of regional connectivity,
overseas distribution and product development. We would also highlight that
AmLife is among the top 10 largest domestic life insurers in terms of gross life
premiums (based on BNM 2011’s data). Also, its takaful license is restricted to
family takaful, which means the potential buyer is likely to face minimal issue
to comply with the new IFSA in terms of single takaful businesses.
Sun Life’s fantastic maiden foray into
Malaysia was via a 20-year exclusive
bancassurance agreement with CIMB.
Sun Life already has an established track
record in its collaboration efforts with CIMB
Niaga, leveraging on the performance of its conventional and takaful businesses in
Indonesia.
We think it is possible that Prudential and Manulife, both of which did not succeed in
the bid for CIMB Aviva, may consider
becoming strategic partners for AmLife and
AmFamily Takaful
The RM500m deal size speculated in the
news suggests that the stake sale of AmLife
and AmTakaful at only 2.1x BV
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Zurich looking to exit MCIS Zurich. Zurich, which is among the top 10
largest insurer in both GI and LI, has yet to publicly announce a confirmation of
a strategic partner to take up its 40% stake in MCIS Zurich following its
acquisition of MAA Assurance in 2011. Under BNM's supervision, insurers are
not allowed to own more than one insurance company. Moreover with the
implementation of the FSB, the pressure to sell to a strategic partner may have
been elevated as we think MCIS Zurich may be affected by the FSA ruling of the
conversion into a single insurance business.
The heat is also strong for GI. Meanwhile, P&O (P&O MK, Non-Rated) is
negotiating with South African financial services group Sanlam to dispose of
about 49% of its GI stake. The most recently arrived deal price amounted to
RM270m, translating to 2.5x BV. P&O will retain 51% ownership and see the
company’s gearing levels improved, assuming this transaction goes through.
This transaction would command a premium slightly higher than Kurnia’s 2.1x.
Based on P&O's circular, Sanlam principally operates LI business in the South
African region but it also specializes in short-term GI products. We are of the
view that valuations for P&O’s transaction may be inclined to be attractive for a
buyer wishing to seek entry into a niche motor insurance segment.
The clock is ticking for Zurich to exit its
40%-owned MCIS Zurich
Will P&O be able to conclude the transaction
with such attractive valuations?
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THE NON-INTEGRATION ANGLE
Increasingly focused on bancassurance. Bancassurance can be in the form
of acquisitions, joint ventures or non-integrated partnerships. We believe that
insurers may be more inclined to seek out bancassurance, given that the FSA
implementations may complicate inorganic acquisitions. Bancassurance can
help insurers achieve above-industry growth rates, and provide diversification
to distribution channels, backed by a more reliable cost structure. According to
LIAM, agents will always remain as the principal force to drive meaningful sales.
However, efforts spent on agent recruitment and maintaining a high percentage
of active agents can affect profitability for some insurers. It is also uncertain
how much dependency is being placed on a few top-performing agents.
Potential regulatory changes surrounding the insurers’ operating costs, for
example the proposed removal of a cap on deferred acquisition costs and
incentives given to agents, could significantly change the rules of the game. We
believe reducing the reliance on the agency model is a natural strategy to
protect insurers from such a risk.
Allianz, for example, has expressed interests to have more partners, besides
CIMB and HSBC, in order to achieve its target of having 25% of its LI premiums
sourced from bancassurance channels. At present, 93% of its annualized new
life premiums are sourced from agents, while bancassurance is responsible for
about 11% of its general premiums distribution. Similarly, Zurich had also
expressed an interest to forge relationships with banks to diversify its
distribution channels. In 2H12, its agents contributed 90% of its business while
contributions from bancassurance were almost negligible.
Productivity remains key. We are cautiously optimistic as the quantum of
utilisation level of bancassurance branches for insurance sales is uncertain and
could turn out to be lower than expected. Insurers have to strike the right
balance between managing channel costs and retaining productive channels
rather than aggressively seeking out banks, co-operatives or NGOs that fail to
turn out to be synergistically beneficial. Customers are also increasingly savvy
and sophisticated in their demand for products that are able to cater to multiple
financial needs. We have a positively view on insurers and their banking
partners who can excel at product development/bundling, pricing, marketing as
well as efficiency in claims processing and delivery, potentially boosting sales
via this channel.
Addressing cross-cultural issues. Another important issue is to address
conflicts between managements and to retain qualified human capital. Insurers
have to work hand in hand with their banking partners to avoid mis-selling for
the sake of promoting sales. For foreign insurers lacking close-hand experience
operating in the Malaysian market, retaining key local staff and aligning the
firm’s interests with local customer perceptions will also be crucial for their
survival amid the competition.
Bancassurance is a key driver to survive
competition
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MARKET DATELINE
MALAYSIA EQUITY
Investment Research
Company Update
Syarikat Takaful Malaysia
A Single Takaful Biz?
STMB is among the composite players likely to be impacted by the IFSA
in regards to the single takaful business ruling. The IFSA gives a five-
year timeframe to comply with this requirement. Assuming a decision
to segregate its business, we believe there may be one-off cost
upsides in the initial years though the costs can be spread over the five
years. We make no changes to our forecasts pending further guidance
from both the company and the industry.
No immediate changes to profit forecasts. We leave our forecasts
unchanged as no industry-level announcements have been made and it is too
premature to determine the quantum of the cost upside at this stage, pending
further guidance from both the company and BNM’s directions. However, we
expect any potential impact on profit to be insignificant given: i) any cost
upside arising from the Islamic Financial Service Act (IFSA) can be spread out
over a five-year period, ii) the possibility of maintaining a cost-sharing model
and sharing of certain key management roles, and iii) the separation of income
and reserve funds between the family and general takaful businesses is already
being practiced.
Conservative dividend payout adjustments. However we take the
opportunity to tweak our dividend forecasts more conservatively, to a 40%
payout, to reflect the regulatory uncertainty which may prompt STMB to
preserve more capital. Our BV/share estimates for FY13-14 are thus increased
by 1%-3% while our ROE estimates for FY13-14 are diluted by 20-40bps to
20.9% and 20.6% respectively. We maintain our BUY call on STMB, with our FV
at RM8.00.
The Research Team +603 9207 7620 [email protected]
Buy Target MYR8.00
Previous MYR8.00
Price MYR5.71
Insurance
Syarikat Takaful Malaysia provides
shariah-compliant general and family
insurance whereby the risk is voluntarily
and collectively shared by a group of
participants.
Stock Statistics
Bloomberg Ticker STMB MK
Market Cap MYR930m
USD299m
52 wk H/L price
(MYR)
6.52 2.11
3m ADT MYR1.45m
YTD Returns (%) 5.0
Beta (x) 0.94
Major Shareholders (%)
BIMB 61.1
EPF 9.1
Share Price Performance (%)
Month Absolute Relative
1m 5.0 4.9
3m 6.1 4.3
6m (11.5) (10.4)
12m 170.6 167.3
6-month Share Price Performance
Source: Bloomberg
Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Net premium revenue (MYRm) 819 952 1,276 1,473 1,684
Net income to ord equity (MYRm) 37 57 97 111 123
Net profit growth 41.2% 2.7% 69.8% 14.9% 10.8%
Recurrent net profit (MYRm) 37 84 102 111 123
Consensus EPS (MYR) 0.23 0.35 0.59 0.68 0.76
EPS (MYR) 0.23 0.35 0.59 0.68 0.76
DPS (MYR) 0.09 0.17 0.25 0.28 0.31
Dividend Yield 1.6% 3.0% 4.4% 4.9% 5.4%
Return on average equity 15.1% 13.6% 20.4% 20.9% 20.6%
Return on average assets 1.1% 1.0% 1.6% 1.6% 1.7%
P/E (x) 25.2 16.3 9.6 8.4 7.5
P/B (x) 2.41 2.07 1.86 1.65 1.47
Source: Company data, RHBRI estimates
78
120
161
203
245
286
328
1.6
2.6
3.6
4.6
5.6
6.6
7.6
05
-Mar-
12
04
-May-1
2
05
-Jul-
12
05
-Sep
-12
06
-Nov-1
2
07
-Jan
-13
Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS)
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OUR VIEW
STMB: to decide on single takaful business ruling. STMB is among the
composite players likely to be impacted by the IFSA in regards to the single
takaful business ruling. The IFSA gives a five-year timeframe to comply with
this requirement. As mentioned earlier, companies that wish to retain both
businesses may set up separate subsidiaries. However, individual subsidiaries
must still fulfil the minimum RM100m paid-up capital criteria under the existing
takaful regulations. While we have yet to obtain management's guidance on
this aspect, should there be a need to set up new subsidiaries, we think STMB
has room for leverage given its current negligible gearing level. We assume a
maximum leverage scenario if STMB injects RM200m of capital for two new
subsidiaries by way of debt raising. In such a case, we project its debt-to-equity
ratio to rise to 0.29x while the double leverage ratio (at company level) may
increase from 14% to 51%.
Assuming this scenario, we would expect one-off costs in the initial years for
STMB to segregate its infrastructure and appoint new key management teams
and boards of directors for the family takaful subsidiary, the general takaful
subsidiary and, potentially, a holding company. Note that STMB may be able to
maintain a singular Shariah board subject to BNM’s approval.
Figure 19: STMB's double leverage and D/E ratios - company level
RMm FY07 FY08 FY09 FY10 FY11
Double Leverage Ratio (%) 9.1% 8.4% 19.9% 17.9% 14.0%
Investment in Subsidiary 27.0 27.6 72.2 70.7 63.7
Investment in Associate 0.0 0.0 0.0 0.0 0.0
Equity - Co Level 295.6 328.8 363.2 395.7 454.4
Debt - Co level 0.0 0.0 0.0 0.0 0.0
Cash - Co Level 13.0 8.3 6.5 2.3 27.8 Source: RHBRI Estimates, Company
We think STMB will be given ample room to
restructure its business and may be less
affected by the single takaful business
ruling, compared to its smaller competitors.
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FINANCIALS
Profit & Loss (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Premium income from insurance policies 1,499.9 1,096.1 1,444.3 1,661.5 1,900.2
Reinsurance ceded (267.3) (143.7) (168.3) (188.8) (216.3)
Net premium revenue 1,232.6 952.4 1,276.0 1,472.7 1,683.9
Total insurance premium revenue 1,232.6 952.4 1,276.0 1,472.7 1,683.9
Gain on securities and other fin assets 287.9 307.3 362.4 382.0 418.7
Net investment income 287.9 307.3 362.4 382.0 418.7
Total other income 325.7 256.1 320.3 465.5 535.6
Total operating income 1,846.2 1,515.8 1,958.7 2,320.2 2,638.2
Claims, maturities & surrenders (755.2) (651.9) (659.1) (903.0) (1,032.1)
Agents' comissions (219) (245) (406) (498) (567)
Management fees (241) (186) (267) (295) (337)
Other operating costs (14) (47) (50) (16) (17)
Cash operating costs ###### ###### ###### ###### ######
Transfer to policyholder reserves (150.8) (63.6) (174.3) (119.7) (137.7)
Depreciation and amortisation 14 14 15 16 17
Total costs (1,367) (1,179) (1,541) (1,815) (2,074)
Operating profit 479 336 418 505 564
Other recurring income (382) (228) (292) (361) (406)
Other exceptional items - (26) (5) - -
Non recurring items - (26) (5) - -
Pre-tax profit 97.1 81.7 121.3 143.6 157.9
Taxation (40) (25) (26) (32) (35)
Minority interests (1) 0 1 (0) 1
Profit after tax & minorities 56 57 97 111 123
Net income to ord equity 56 57 97 111 123
Recurring net profit 56 77 101 111 123
Profit & Loss (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Premium income from insurance policies 1,499.9 1,096.1 1,444.3 1,661.5 1,900.2
Reinsurance ceded (267.3) (143.7) (168.3) (188.8) (216.3)
Net premium revenue 1,232.6 952.4 1,276.0 1,472.7 1,683.9
Total insurance premium revenue 1,232.6 952.4 1,276.0 1,472.7 1,683.9
Gain on securities and other fin assets 287.9 307.3 362.4 382.0 418.7
Net investment income 287.9 307.3 362.4 382.0 418.7
Total other income 325.7 256.1 320.3 465.5 535.6
Total operating income 1,846.2 1,515.8 1,958.7 2,320.2 2,638.2
Claims, maturities & surrenders (755.2) (651.9) (659.1) (903.0) (1,032.1)
Agents' comissions (219) (245) (406) (498) (567)
Management fees (241) (186) (267) (295) (337)
Other operating costs (14) (47) (50) (16) (17)
Cash operating costs ###### ###### ###### ###### ######
Transfer to policyholder reserves (150.8) (63.6) (174.3) (119.7) (137.7)
Depreciation and amortisation 14 14 15 16 17
Total costs (1,367) (1,179) (1,541) (1,815) (2,074)
Operating profit 479 336 418 505 564
Other recurring income (382) (228) (292) (361) (406)
Other exceptional items - (26) (5) - -
Non recurring items - (26) (5) - -
Pre-tax profit 97.1 81.7 121.3 143.6 157.9
Taxation (40) (25) (26) (32) (35)
Minority interests (1) 0 1 (0) 1
Profit after tax & minorities 56 57 97 111 123
Net income to ord equity 56 57 97 111 123
Recurring net profit 56 77 101 111 123
Balance Sheet (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Cash at bank 247 375 452 483 517
Short term investments - 268 2 2 2
Total current assets 247 643 454 484 519
Total investments 3,942 3,589 4,737 5,145 5,584
Tangible fixed assets 30 28 30 31 32
Intangible assets 13 16 34 20 20
Embedded value assets 201 195 1 211 231
Premiums receivable 101 109 185 138 178
Debtors & prepayments 555 920 600 652 652
Other assets 277 344 330 493 548
Total other assets 1,134 1,568 1,116 1,494 1,609
Total assets 5,366 5,845 6,371 7,174 7,763
Policyholders' funds 3,560.3 3,934.1 3,988.8 4,799.2 5,166.2
Long-term & retirement funds 3,560.3 3,934.1 3,988.8 4,799.2 5,166.2
General insurance funds 157.4 165.0 (23.4) 263.4 299.7
Total insurance funds 3,717.7 4,099.0 3,965.4 5,062.6 5,465.9
Total current liabilities 340 318 346 335 353
Capital gains smoothing reserve 937.1 978.3 1,386.1 1,067.8 1,175.0
Outstanding claims reserves - - 69 - -
Technical provisions 24.8 19.7 89.5 89.5 89.5
Long term insurance liabilities 961.9 998.1 1,544.1 1,157.3 1,264.5
Total non-current liabilities (41) (22) 15 36 67
Total liabilities 4,978.0 5,392.4 5,869.7 6,590.0 7,150.0
Total reserves 223 287 337 402 470
Shareholders' equity 386 450 499 565 632
Minority interests 27 27 26 29 30
Total equity 413 477 526 594 662
Source: Company data, RHBRI
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Key Ratios Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Reinsurance ratio 17.8% 13.1% 11.7% 11.4% 11.4%
Retention ratio 82.2% 86.9% 88.3% 88.6% 88.6%
Claims ratio 61.3% 68.5% 51.7% 61.3% 61.3%
Commission ratio 17.8% 25.7% 31.8% 33.8% 33.7%
Expense ratio 20.7% 24.5% 24.8% 21.1% 21.0%
Combined ratio 99.8% 118.6% 108.3% 116.2% 116.0%
Underwriting margin 38.9% 35.3% 32.8% 34.3% 33.5%
Investment yield 7.3% 8.6% 7.7% 7.4% 7.5%
Liquidity ratio 72.8% 202.6% 131.4% 144.7% 147.0%
Return on average equity 15.1% 13.6% 20.4% 20.9% 20.6%
Return on average assets 1.1% 1.0% 1.6% 1.6% 1.7%
EPS growth 40.7% 2.7% 69.8% 14.9% 10.8%
Bv per share growth 10.4% 16.6% 11.0% 13.2% 11.9%
Operating profit growth 110.2% -29.8% 24.2% 20.8% 11.7%
Source: Company data, RHBRI
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MARKET DATELINE
MALAYSIA EQUITY
Investment Research
Company Update
MNRB Holdings
To Decide On Takaful Ikhlas' Future
We think that MNRB’s takaful subsidiary, Takaful Ikhlas SB, is subject
to IFSA rulings to convert to a single business and corporatise a public
company. The IFSA may prompt MNRB to relook at its stake sale of
Takaful Ikhlas SB to a strategic partner, as further internal capital
injections could be complicated. While its takaful business has grown,
the longer-term business direction of the subsidiary is highly
uncertain. Hence, we downgrade our call to a TRADING BUY, with FV
unchanged at RM3.30.
Highly geared already. MNRB's high gearing and double leverage situation
implies that options for capital injections for potential internal restructuring
exercises could be very limited. Its high double leverage ratios and an
increased gearing level to 52% was the result of a revolving RM120m credit
facility taken to inject RM100m capital into Takaful Ikhlas and RM10m into
Malaysian Re. MNRB Holdings had on 10 Dec 2012 announced a refinancing of
the outstanding RM120m credit facility via a five-year Sukuk Mudharabah
programme of up to RM150m (of which RM30m will be allocated to working
capital purposes) and the refinancing of the outstanding RM200m Islamic
Medium-Term Notes (IMTN) via a five-year revolving credit facility of from
Standard Chartered Saaqid.
Downgrade to TRADING BUY. While we make no changes to our forecast,
the Islamic Financial Service Act (IFSA) implementation may prompt MNRB
Holdings to relook into its stake sale options of Takaful Ikhlas SB to a strategic
partner. MNRB Holdings had in 2011 attempted to sell the business but the deal
was called off. Given the uncertain outlook of its takaful business, we
downgrade the stock to a Trading Buy.
The Research Team +603 9207 7620 [email protected]
Trading Buy Target MYR3.30
Previous MYR3.30
Price MYR2.70
Insurance
MNRB Holdings underwrites all classes of
general reinsurance business. The main
types of general reinsurance business
are proportional and non-proportional
treaty reinsurance, and facultative
reinsurance
Stock Statistics
Bloomberg Ticker MNRB MK
Market Cap MYR575m
USD185m
52 wk H/L price
(MYR)
3.29 2.40
3m ADT MYR0.21m
YTD Returns (%) 1.5
Beta (x) 0.66
Major Shareholders (%)
Skim Amanah Saham
Bumiputera
48.0
PNB 12.8
Share Price Performance (%)
Month Absolute Relative
1m 6.7 6.6
3m (2.5) (4.3)
6m (17.4) (16.3)
12m (0.4) (3.7)
6-month Share Price Performance
87
93
99
105
110
116
122
2.3
2.5
2.7
2.9
3.1
3.3
3.5
05
-Mar-
12
04
-May-1
2
05
-Jul-
12
05
-Sep
-12
06
-Nov-1
2
07
-Jan
-13
Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS)
Source: Bloomberg
Forecasts and Valuations Mar-10 Mar-11 Mar-12 Mar-13F Mar-14F
Net premium revenue (MYRm) 1,088 1,026 972 1,092 1,190
Net income to ord equity (MYRm) 51 123 84 116 122
Net profit growth 92.9% 142.4% (31.6%) 38.2% 4.8%
Recurrent net profit (MYRm) 51 123 84 116 122
Consensus EPS (MYR) 0.24 0.58 0.39 0.55 0.57
EPS (MYR) 0.24 0.58 0.39 0.55 0.57
DPS (MYR) 0.00 0.20 0.17 0.25 0.27
Dividend Yield 0.0% 7.4% 6.3% 9.4% 9.9%
Return on average equity 5.9% 13.0% 8.0% 10.2% 10.0%
Return on average assets 1.4% 2.9% 1.7% 2.1% 2.0%
P/E (x) 11.3 4.7 6.8 5.0 4.7
P/B (x) 0.64 0.58 0.52 0.49 0.46
Source: Company data, RHBRI estimates
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OUR VIEW
MNRB: Takaful Ikhlas to be remodeled? We think MNRB’s takaful subsidiary
Takaful Ikhlas SB is subject to the conversion to a single takaful business ruling
within the five-year timeframe. Moreover, the Islamic Financial Service Act
(IFSA) subjects all private takaful companies to convert into public companies
within 12 months upon the enactment of the Act.
While no announcements have been made, assuming Takaful Ikhlas is to set up
separate subsidiaries to operate the general and family takaful businesses
individually, there may be a need for additional capital injection. However,
MNRB's high gearing and double leverage situation implies that options for
capital injections could be very limited. Takaful Ikhlas had just appointed a new
CEO earlier this year but a potential separation of the business may prompt the
company to further increase its management pool.
Figure 20 MNRB Holding's double leverage and D/E ratios - company level
RMm FY08 FY09 FY10 FY11 FY12
Double Leverage Ratio (%) 104.0% 113.3% 126.8% 129.1% 147.2%
Investment in Subsidiary 755.0 781.4 801.4 794.5 904.5
Investment in Associate 2.0 2.0 2.0 2.0 2.0
Equity - Co Level 727.8 691.5 633.6 617.1 615.9
Debt - Co level 200.0 200.0 200.0 200.0 320.0
Cash - Co Level 0.0 0.1 0.1 0.1 0.0
D/E Ratio (%) 27.5% 28.9% 31.5% 32.4% 52.0% Source: RHBRI Estimates, Company
Will MRNB’s past capital injection into Takaful Ikhlas be deemed sufficient to meet
the FSA rulings?
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FINANCIALS
Profit & Loss (MYRm) Mar-10 Mar-11 Mar-12 Mar-13F Mar-14F
Premium income from insurance policies 1,235.1 1,151.9 1,178.5 1,284.6 1,400.2
Reinsurance ceded (147.0) (125.9) (206.1) (192.7) (210.0)
Net premium revenue 1,088.1 1,025.9 972.4 1,091.9 1,190.1
Total insurance premium revenue 1,088.1 1,025.9 972.4 1,091.9 1,190.1
Gain on securities and other fin assets 33.8 112.3 96.8 100.2 103.1
Net investment income 33.8 112.3 96.8 100.2 103.1
Total operating income 1,121.9 1,138.3 1,069.3 1,192.1 1,293.2
Claims, maturities & surrenders (736.7) (609.5) (601.5) (666.0) (749.8)
Agents' comissions (149) (166) (147) (164) (174)
Management fees (158) (173) (154) (164) (167)
Other operating costs (13) (33) (7) (24) (21)
Cash operating costs (1,057.5) (981.9) (908.6) (1,017.6) (1,111.1)
Depreciation and amortisation 7 9 8 9 9
Total costs (1,050) (973) (901) (1,009) (1,103)
Operating profit 72 165 168 183 191
Income from associates 15 7 (30) 5 5
Other recurring income (7) (7) (12) (14) (14)
Pre-tax profit 79.3 164.9 126.2 174.0 181.6
Taxation (29) (42) (42) (58) (60)
Profit after tax & minorities 51 123 84 116 122
Net income to ord equity 51 123 84 116 122
Recurring net profit 51 123 84 116 122
Source: Company data, RHBRI
Balance Sheet (MYRm) Mar-10 Mar-11 Mar-12 Mar-13F Mar-14F
Cash at bank 6 9 3 10 10
Short term investments 34 57 0 0
Total current assets 6 44 59 10 10
Total investments 1046 1227 1400 1500 1548
Tangible fixed assets 125 118 160 170 179
Intangible assets 23 18 19 19 19
Premiums receivable 149 138 150 230 290
Loans 1025 1035 1016 1118 1230
Other assets 1480 1904 2416 2683 2976
Total other assets 2653 3077 3582 4031 4496
Total assets 3853 4484 5220 5730 6251
Policyholders' funds 940 1202 1461 1607 1767
Long-term & retirement funds 940 1202 1461 1607 1767
General insurance funds 279 340 336 370 407
Total insurance funds 1219 1542 1797 1977 2174
Total current liabilities 156 160 136 155 163
Outstanding claims reserves 1333 1413 1638 1770 1992
Technical provisions 0 1 0 11 11
Long term insurance liabilities 1334 1413 1639 1781 2003
Total non-current liabilities 150 150 270 350 350
Total liabilities 2859 3266 3842 4262 4690
Total reserves 679 786 883 959 1038
Shareholders' equity 893 999 1096 1172 1251
Other equity 95 204 258 283 312
Total equity 987 1202 1354 1455 1563
Source: Company data, RHBRI
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Key Ratios Mar-10 Mar-11 Mar-12 Mar-13F Mar-14F
Reinsurance ratio 11.9% 10.9% 17.5% 15.0% 15.0%
Retention ratio 88.1% 89.1% 82.5% 85.0% 85.0%
Claims ratio 67.7% 59.4% 61.9% 61.0% 63.0%
Commission ratio 13.7% 16.2% 15.1% 15.0% 14.6%
Expense ratio 15.8% 20.1% 16.5% 17.2% 15.7%
Combined ratio 97.2% 95.7% 93.4% 93.2% 93.4%
Underwriting margin 6.6% 16.1% 17.3% 16.8% 16.0%
Investment yield 3.2% 9.2% 6.9% 6.7% 6.7%
Liquidity ratio 3.8% 27.2% 43.5% 6.4% 6.1%
Return on average equity 5.9% 13.0% 8.0% 10.2% 10.0%
Return on average assets 1.4% 2.9% 1.7% 2.1% 2.0%
EPS growth 92.9% 142.4% -31.6% 38.2% 4.8%
Bv per share growth 6.8% 11.9% 9.8% 6.9% 6.7%
Operating profit growth 34.7% 130.8% 2.0% 8.6% 4.2%
Source: Company data, RHBRI
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MARKET DATELINE
MALAYSIA EQUITY
Investment Research
Company Update
Allianz Malaysia
Unperturbed by FSA
We see Allianz as being able to continue to sustain its organic growth
through its agency force and diversification of its underwriting
channels. We do not expect the company to be significantly impacted
by the FSA given that it operates its LI and GI businesses under
separate licenses and company structures. We do not see the need for
Allianz to restructure its business. However, we are also not ruling out
the possibility that it may reconsider potential M&A opportunities post-
FSA implementation. Maintain NEUTRAL, FV RM8.02.
FSA may present M&A opportunities. Allianz is relatively inactive in M&As
compared to its direct peers, given its strong foothold commanding as much as
10% of the general insurance (GI) market and its focus on organic growth as
opposed to jumping unto the M&A bandwagon. As mentioned in our previous
company update, bancassurance is a key focus for Allianz Malaysia (especially
on the life insurance business). However, opportunities in the industry that
may arise from the Financial Services Act (FSA) may prompt Allianz to keep a
watch out for potential new M&A targets in the conventional or takaful
industries. Note that Allianz has yet to own a takaful license.
No changes to forecast. We do not foresee factors that will render changes
to our valuations. Hence, we retain our NEUTRAL call and FV of RM8.02,
pegged to a sum-of-parts valuation of a 15x FY13 PER for its GI business and a
1x P/EV for its life insurance (LI) business valued at RM700m.
The Research Team +603 9207 7620 [email protected]
Neutral Target MYR8.02
Previous MYR8.02
Price MYR7.50
Insurance
Allianz is primarily involved in the
underwriting of general insurance, life
insurance and investment holding.
Stock Statistics
Bloomberg Ticker ALLZ MK
Market Cap MYR1,190m
USD383m
52 wk H/L price
(MYR)
8.06 4.49
3m ADT MYR0.64m
YTD Returns (%) 6.4
Beta (x) 0.63
Major Shareholders (%)
Allianz SE 72.7
EPF 4.8
Share Price Performance (%)
Month Absolute Relative
1m 3.0 2.9
3m 10.5 8.7
6m 14.5 15.6
12m 53.1 49.8
6-month Share Price Performance
85
94
103
112
121
129
138
147
156
165
4.1
4.6
5.1
5.6
6.1
6.6
7.1
7.6
8.1
8.6
05
-Mar-
12
04
-May-1
2
05
-Jul-
12
05
-Sep
-12
06
-Nov-1
2
07
-Jan
-13
Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS)
| Source: Bloomberg
Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Net premium revenue (MYRm) 1,837 2,082 2,323 2,665 3,018
Net income to ord equity (MYRm) 112 164 203 223 249
Net profit growth 10.3% 46.4% 24.3% 9.7% 11.5%
Recurrent net profit (MYRm) 129 120 208 223 249
Consensus EPS (MYR) 0.73 1.05 1.29 1.37 1.40
EPS (MYR) 0.73 1.05 1.29 1.41 1.57
DPS (MYR) 0.04 0.05 0.07 0.07 0.08
Dividend Yield 0.5% 0.7% 0.9% 0.9% 1.0%
Return on average equity 14.2% 13.0% 13.1% 12.6% 12.3%
Return on average assets 1.8% 2.2% 2.4% 2.3% 2.4%
P/E (x) 10.3 7.1 5.8 5.3 4.8
P/B (x) 1.08 0.81 0.72 0.63 0.55
Source: Company data, RHBRI estimates
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OUR VIEW
Allianz: Unperturbed by FSA. We do not expect the company to be impacted
from the FSA and hence moving forward, we think it will not see the need to
restructure its business. We see Allianz as being able to continue to sustain its
organic growth through its agency force and diversification of its underwriting
channels. CEO Jens Reisch had expressed interests for more bancassurance
partners other than the group’s current tie-ups with CIMB and HSBC, with the
aim to have 25% of the group’s life premiums sourced from bancassurance
channels. At present, 93% of the annualized new life premiums are sourced
from its 6.5k agency force while alternative channels account for about <2%.
Bancassurance is responsible for about 11% of their general premiums
distribution.
Figure 21 Allianz Malaysia's double-leverage and D/E Ratios (company level)
RMm FY07 FY08 FY09 FY10 FY11
Double Leverage Ratio (%) 204.4% 208.0% 242.4% 109.3% 109.6%
Investment in Subsidiary 793.4 793.4 926.6 1,084.5 1,084.5
Investment in Associate 0.0 0.0 0.0 0.0 0.0
Equity - Co Level 388.1 381.5 382.2 992.2 989.6
Debt - Co level 490.0 490.0 490.0 0.0 0.0
Cash - Co Level 0.1 0.0 8.0 7.6 5.9
D/E Ratio (%) 126.2% 128.4% 126.1% n.a. n.a. Source: RHBRI Estimates, Company
Allianz is already operating the life and
general businesses separately and is hence
not affected by the single insurance
business ruling.
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FINANCIALS
Profit & Loss (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Premium income from insurance policies 2,324.9 2,519.2 2,875.4 3,344.0 3,788.1
Reinsurance ceded (488.1) (437.0) (552.8) (679.2) (770.4)
Net premium revenue 1,836.8 2,082.2 2,322.6 2,664.9 3,017.7
Total insurance premium revenue 1,836.8 2,082.2 2,322.6 2,664.9 3,017.7
Gain on securities and other fin assets 226.9 267.3 333.8 378.4 429.8
Net investment income 226.9 267.3 333.8 378.4 429.8
Total other income 25.0 6.5 7.7 - 9.0
Total operating income 2,088.7 2,356.1 2,664.1 3,043.3 3,456.5
Claims, maturities & surrenders (1,310.9) (1,495.1) (1,634.3) (1,894.4) (2,161.9)
Agents' comissions (325) (366) (376) (426) (483)
Management fees (242) (271) (341) (380) (430)
Other operating costs (30) (31) (28) (27) (27)
Cash operating costs ###### ###### ###### ###### ######
Depreciation and amortisation 10 11 12 10 10
Total costs (1,897) (2,151) (2,366) (2,717) (3,092)
Operating profit 192 205 298 326 365
Other exceptional items (18) 44 (4) - -
Non recurring items (18) 44 (4) - -
Pre-tax profit 174.1 248.8 293.5 326.2 364.7
Taxation (62) (85) (90) (103) (116)
Profit after tax & minorities 112 164 203 223 249
Net income to ord equity 112 164 203 223 249
Recurring net profit 112 164 203 223 249
Profit & Loss (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Premium income from insurance policies 2,324.9 2,519.2 2,875.4 3,344.0 3,788.1
Reinsurance ceded (488.1) (437.0) (552.8) (679.2) (770.4)
Net premium revenue 1,836.8 2,082.2 2,322.6 2,664.9 3,017.7
Total insurance premium revenue 1,836.8 2,082.2 2,322.6 2,664.9 3,017.7
Gain on securities and other fin assets 226.9 267.3 333.8 378.4 429.8
Net investment income 226.9 267.3 333.8 378.4 429.8
Total other income 25.0 6.5 7.7 - 9.0
Total operating income 2,088.7 2,356.1 2,664.1 3,043.3 3,456.5
Claims, maturities & surrenders (1,310.9) (1,495.1) (1,634.3) (1,894.4) (2,161.9)
Agents' comissions (325) (366) (376) (426) (483)
Management fees (242) (271) (341) (380) (430)
Other operating costs (30) (31) (28) (27) (27)
Cash operating costs ###### ###### ###### ###### ######
Depreciation and amortisation 10 11 12 10 10
Total costs (1,897) (2,151) (2,366) (2,717) (3,092)
Operating profit 192 205 298 326 365
Other exceptional items (18) 44 (4) - -
Non recurring items (18) 44 (4) - -
Pre-tax profit 174.1 248.8 293.5 326.2 364.7
Taxation (62) (85) (90) (103) (116)
Profit after tax & minorities 112 164 203 223 249
Net income to ord equity 112 164 203 223 249
Recurring net profit 112 164 203 223 249
Source: Company data, RHBRI
Balance Sheet (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Cash at bank 495 512 458 366 465
Total current assets 495 512 458 366 465
Total investments 4,637 5,596 6,831 7,887 8,385
Tangible fixed assets 87 92 112 112 112
Intangible assets 354 349 354 365 383
Premiums receivable 100 117 145 296 335
Debtors & prepayments 121 110 116 120 120
Other assets 1,053 1,157 1,175 1,029 1,061
Total other assets 1,274 1,384 1,436 1,445 1,516
Total assets 6,847 7,932 9,191 10,174 10,861
Policyholders' funds 5,019.3 5,628.2 6,563.0 7,402.3 8,218.8
Long-term & retirement funds 5,019.3 5,628.2 6,563.0 7,402.3 8,218.8
Total insurance funds 5,019.3 5,628.2 6,563.0 7,402.3 8,218.8
Total current liabilities 490 500 592 568 577
Total non-current liabilities 79 167 195 129 129
Total liabilities 5,587.5 6,294.7 7,349.7 8,099.5 8,925.6
Share premium account 425 425 425 425 425
Other reserves - 245 279 313 351
Total reserves 913 1,292 1,495 1,728 1,989
Shareholders' equity 1,067 1,448 1,653 1,887 2,147
Preferred shareholders funds 192 190 188 188 188
Total equity 1,260 1,638 1,841 2,075 2,335
Source: Company data, RHBRI
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Key Ratios Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Reinsurance ratio 21.0% 17.3% 19.2% 20.3% 20.3%
Retention ratio 79.0% 82.7% 80.8% 79.7% 79.7%
Claims ratio 71.4% 71.8% 70.4% 71.1% 71.6%
Commission ratio 17.7% 17.6% 16.2% 16.0% 16.0%
Expense ratio 14.8% 14.5% 15.9% 15.3% 15.1%
Combined ratio 103.8% 103.9% 102.4% 102.3% 102.8%
Underwriting margin 10.4% 9.8% 12.8% 12.2% 12.1%
Investment yield 4.9% 4.8% 4.9% 4.8% 5.1%
Liquidity ratio 101.0% 102.4% 77.4% 64.4% 80.5%
Return on average equity 14.2% 13.0% 13.1% 12.6% 12.3%
Return on average assets 1.8% 2.2% 2.4% 2.3% 2.4%
EPS growth 10.3% 45.2% 22.4% 8.9% 11.5%
Bv per share growth 111.4% 33.5% 12.6% 14.1% 13.8%
Operating profit growth 8.3% 6.9% 45.3% 9.6% 11.8%
Source: Company data, RHBRI
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MARKET DATELINE
MALAYSIA EQUITY
Investment Research
Company Update
LPI Capital
Resilient Insurance Stock
LPI Capital is expected to be materially impacted by the FSA. However,
with its strong corporate governance and capitalization strength, we
do not expect it to face pertinent issues as a Financial Holding
Company (FHC). In view of its recent share price correction, we upgrade
our call to a BUY. Its resilience against regulatory risks as well as its
strength as one of the top 10 general insurers in Malaysia could be
attractive to risk-averse investors seeking exposure to local insurance
stocks.
May consider M&As. Like Allianz, LPI Capital has been steering clear of any
acquisition drive. We, however, think that it may be open to considerations of
new M&A opportunities among companies that fail to comply with the rulings of
the Financial Services Act (FSA).
Individual ownership of 10%. Based on LPI Capital's Annual Report 2012,
Tan Sri Dato' Sri Dr. Teh Hong Piow has indirect interest in the company
amounting to 44.3% and hence he may likely be subjected to the FSA's five-
year timeframe to comply with the 10% maximum permissible holding
requirement.
Upgrade to BUY. We upgrade our call to a BUY, due to its recent share price
correction, which had also increased the attractiveness of its dividend yield,
now at 5.7%. While LPI Capital lacks exposure to the life insurance (LI) market
and hence we expect its premiums growth to be slightly more moderate
compared to those of Allianz (NEUTRAL, FV: RM8.02), we view LPI Capital as a
resilient insurance stock against regulatory uncertainties and thus attractive to
risk-averse investors.
The Research Team +603 9207 7620 [email protected]
Buy Target MYR15.75
Previous MYR15.75
Price MYR13.52
Insurance
LPI is primarily involved in the
underwriting of general insurance,
investment holding and financing leases.
Stock Statistics
Bloomberg Ticker LPI MK
Market Cap MYR2,979m
USD959m
52 wk H/L price
(MYR)
14.8 13.2
3m ADT MYR0.37m
YTD Returns (%) (7.0)
Beta (x) 0.76
Major Shareholders (%)
Selected Holdings SB 16.2
Kepunyaan Chintamani SB 13.6
Nipponkoa Insurance Co Ltd 8.5
Share Price Performance (%)
Month Absolute Relative
1m 0.9 0.8
3m (0.2) (2.0)
6m 0.1 1.2
12m 0.1 (3.2)
6-month Share Price Performance
94
95
96
98
99
100
101
102
104
105
106
13.0
13.2
13.4
13.6
13.8
14.0
14.2
14.4
14.6
14.8
15.0
05
-Mar-
12
04
-May-1
2
05
-Jul-
12
05
-Sep
-12
06
-Nov-1
2
07
-Jan
-13
Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS)
Source: Bloomberg
Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Net premium revenue (MYRm) 465 527 585 662 748
Net income to ord equity (MYRm) 137 153 167 180 195
Net profit growth 8.6% 12.0% 8.8% 7.7% 8.3%
Recurrent net profit (MYRm) 138 154 167 180 195
Consensus EPS (MYR) 0.75 0.89 1.00
EPS (MYR) 0.62 0.69 0.75 0.81 0.88
DPS (MYR) 0.55 0.75 0.65 0.77 0.84
Dividend Yield 4.1% 5.5% 4.8% 5.7% 6.2%
Return on average equity 13.3% 13.1% 13.1% 12.7% 13.0%
Return on average assets 6.6% 6.6% 6.5% 6.2% 6.1%
P/E (x) 21.9 19.5 17.9 16.7 15.4
P/B (x) 2.58 2.53 2.18 2.06 1.94
Source: Company data, RHBRI estimates
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OUR VIEW
LPI: Strong group-level capitalisation. LPI Capital is not subjected to the
single conversion business ruling as it is only involved in the general insurance
(GI) business. At the holding company level, LPI Capital's double leverage
ratios remained intact on the back of strong equity growth at the company level
while its D/E ratios (company level) are nearly negligible. We reiterate our view
that LPI has strong corporate governance and capitalisation strength and hence
we do not expect Bank Negara Malaysia (BNM) to raise any pertinent issues in
regards of LPI Capital as a FHC. However, there may be an uncertainty element
whether the high proportion of equity instruments in LPI Capitals's portfolio will
be deemed risky under BNM's prudential guidelines for the FHCs. Note that a
significant >90% proportion of its equity class comprises Public Bank Shares.
Figure 22 LPI Capital's double leverage and D/E ratios - company level
RMm FY08 FY09 FY10 FY11 FY12
Double Leverage Ratio (%) 20.8% 14.9% 11.3% 22.8% 18.9%
Investment in Subsidiary 101.1 100.1 100.1 200.0 200.0
Investment in Associate 10.8 10.8 10.8 10.8 10.8
Equity - Co Level 537.9 746.1 979.9 923.9 1,113.9
Debt - Co level 0.0 72.9 52.9 39.5 32.5
Cash - Co Level 57.8 78.6 186.3 0.3 19.9
D/E Ratio (%) n.a. n.a. n.a. 4.2% 1.1% Source: RHBRI Estimates, Company
Figure 23 LPI Capital's AFS and HTM investment portfolio
RMm FY08 FY09 FY10 FY11 FY12
Equity 80.7% 76.3% 76.1% 71.5% 74.9%
Unit Trust 0.9% 0.7% 0.6% 0.6% 0.5%
MGS 8.1% 6.4% 4.5% 5.1% 4.0%
GII 0.5% 2.7% 2.3% 2.1% 1.6%
Msian Govt Guaranteed Loans 1.7% 1.2% 2.1% 1.9% 0.8%
Singapore Govt Guaranteed Loans 0.4% 0.3% 0.1% 0.1% 0.1%
PDS 4.1% 9.8% 11.9% 16.4% 15.7% AFS= available for sale; HTM= held to maturity
Source: RHBRI Estimates, Company
LPI Capital has a high proportion of equity
instruments in its portfolio at the FHC level
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FINANCIAL
Profit & Loss (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Premium income from insurance policies 755.9 907.9 1,033.9 1,173.4 1,327.2
Reinsurance income (33.7) (47.6) (55.5) (63.0) (71.3)
Reinsurance ceded (257.0) (333.6) (393.8) (448.3) (508.3)
Net premium revenue 465.3 526.7 584.5 662.2 747.6
Total insurance premium revenue 465.3 526.7 584.5 662.2 747.6
Gain on securities and other fin assets 70.3 67.4 67.6 71.2 71.9
Net investment income 70.3 67.4 67.6 71.2 71.9
Total other income - 0.3 - - -
Total operating income 535.5 594.4 652.2 733.4 819.5
Claims, maturities & surrenders (220.8) (257.7) (277.9) (317.4) (356.6)
Agents' comissions (42) (36) (46) (50) (57)
Management fees (89) (100) (114) (132) (153)
Other operating costs (3) (2) (1) (2) (2)
Cash operating costs (355.3) (395.1) (438.9) (501.4) (568.2)
Total costs (355) (395) (439) (501) (568)
Operating profit 180 199 213 232 251
Income from associates 1 1 1 1 1
Gains on asset disposals (1) (1) - - -
Non recurring items (1) (1) - - -
Pre-tax profit 180.3 198.9 214.0 232.8 252.0
Taxation (43) (46) (47) (53) (57)
Profit after tax & minorities 137 153 167 180 195
Net income to ord equity 137 153 167 180 195
Recurring net profit 137 154 167 180 195
Source: Company data, RHBRI
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Balance Sheet (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Cash at bank 599 415 420 524 648
Short term investments - - - - 1
Total current assets 599 415 420 524 649
Total investments 990 1,082 1,254 1,263 1,273
Tangible fixed assets 9 13 12 16 18
Intangible assets 25 28 27 27 26
Premiums receivable 80 105 99 124 154
Loans 190 353 454 515 582
Other assets 353 409 484 559 643
Total other assets 623 867 1,036 1,197 1,380
Total assets 2,246 2,405 2,749 3,027 3,346
Unassigned surplus 89.4 - - - -
Policyholders' funds 868.6 1,007.8 1,149.7 1,304.9 1,475.8
Long-term & retirement funds 958.0 1,007.8 1,149.7 1,304.9 1,475.8
Total insurance funds 958.0 1,007.8 1,149.7 1,304.9 1,475.8
Total current liabilities 74 175 193 233 290
Total non-current liabilities 54 40 34 34 34
Total liabilities 1,086.2 1,223.6 1,376.6 1,571.3 1,798.9
Other reserves (9) (8) (8) (8) (8)
Total reserves 939 960 1,151 1,235 1,325
Shareholders' equity 1,160 1,182 1,373 1,456 1,546
Total equity 1,160 1,182 1,373 1,456 1,546
Source: Company data, RHBRI
Key Ratios Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Reinsurance ratio 34.0% 36.7% 38.1% 38.2% 38.3%
Retention ratio 61.6% 58.0% 56.5% 56.4% 56.3%
Claims ratio 47.5% 48.9% 47.5% 47.9% 47.7%
Commission ratio 9.1% 6.8% 7.9% 7.5% 7.6%
Expense ratio 19.8% 19.2% 19.7% 20.3% 20.7%
Combined ratio 76.4% 75.0% 75.1% 75.7% 76.0%
Underwriting margin 38.7% 37.8% 36.5% 35.0% 33.6%
Investment yield 7.1% 6.2% 5.4% 5.6% 5.7%
Liquidity ratio 806.8% 236.8% 217.1% 224.9% 224.1%
Return on average equity 13.3% 13.1% 13.1% 12.7% 13.0%
Return on average assets 6.6% 6.6% 6.5% 6.2% 6.1%
EPS growth 8.6% 12.0% 8.8% 7.7% 8.3%
Bv per share growth 28.8% 1.8% 16.2% 6.1% 6.2%
Operating profit growth 12.3% 10.6% 7.0% 8.8% 8.3%
Source: Company data, RHBRI
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RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
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