Background

MNRB Holdings Bhd ('MNRB') is involved in re-insurance as well as in takaful insurance. In Malaysia, there are presently 5 reinsurers and 2 full-fledged retakaful operators (plus one branch retakaful operation).

Recent Financial Results

MNRB's recent results has been very disappointing. I have appended below the last 10 quarterly results for MNRB, where the poor results for the following 4 quarters should be noted:
1. QE30/9/2009

Bottom-line was impacted by claims arising from Typhoon Ketsana in the Phillipines & Vietnam, Earthquake in Padang, Indonesia & Flood in Istanbul, Turkey.

2. QE30/6/2009

Losses incurred due to one-off additional provision of RM51.8 million (net of tax RM41.8 million) for claim reserving, in line with BNM's Risk Based Capital Requirement implemented on 1/1/2009.

3. QE31/12/2008

Losses incurred due to higher provision for diminution in the value of investment of quoted securities.

4. QE30/9/2008

Losses incurred due to higher provision for diminution in the value of investment of quoted securities & higher claim due to Hailstorm in Slovenia.

Due to the one-off additional provision of RM51.8 million made in QE30/6/2009, MNRB recorded a pre-tax loss of RM26.1 million for 6-month ended 30/9/2009. If the provision is excluded, MNRB would achieve a pre-tax profit of RM25.7 million.


Table 1: MNRB's last 10 quarterly results

From Chart 1 below, we can see that MNRB's top-line has been rising steadily over the past 11 quarters, but the bottom-line has been dropping due to higher claims resulting from natural disasters; provision made for diminution in the value of quoted securities owned (due to Global Financial Crisis of 2008-9); and additional one-off provision as stipulated by BNM. As the latter two items are not likely to repeat, we can expect MNRB's results to slowly improve going forward.


Chart 1: MNRB's last 11 quarterly results

Historical Financial Results

From Table 2 & Chart 2 below, we can see that MNRB's top-line & bottom-line have been rising steadily until FY2009, where the bottom-line took a dip due to the provisions made for diminution in value of quoted securities. This poor run has since extended into the first 6 months of FY2010.


Table 2: MNRB's last 9 yearly results


Chart 2: MNRB's last 9 yearly results

Valuation

It is difficult to value MNRB due to the volatility in its earning over the past 5 quarters. I approach this by calculating its normalized or average after-tax profit for the past 8 quarters (excluding the effect of the one-off provision net off tax of RM41.8 million). This gives an after-tax profit of RM42.5 million per annum or a full-year EPS of 20 sen. Based on this & MNRB's closing price of RM2.75, the stock is now trading at a PER of 13.8 times. At that multiple, MNRB is trading very near its fair value of RM3.00 (based on a PER of 15 times).

Technical Outlook

MNRB is in a downtrend for the past two & half years. It may soon test a strong horizontal support at RM2.60-70. See Chart 3 below.


Chart 3: MNRB's weekly chart as at Feb 4, 2010 (Source: Quickcharts)

If we look further back in time, we can see that MNRB has been trapped in a 'trading range' for 10 years, with the resistance at RM5.80-6.00 & the support at RM2.50-60. As such, I believe that the support at RM2.60 is a very strong support; thus a good entry level for this stock. See Chart 4 below.


Chart 4: MNRB's weekly chart as at Feb 3, 2010 (Source: Tradesignum)

Conclusion

Based on technical consideration, MNRB could be a good BUY at RM2.60-70 level.