• MNRB is Malaysia’s national reinsurer/retakaful operator, which also has regional presence in Asia, India and MENA. Besides, it is also a Family and General Takaful player in the domestic market
• The earnings trend of MNRB has shown signs of improvement since FY16 (hit by large claims and one-off adjustments). Management plans to continue remodelling its reinsurance portfolio and expand banca-partners in 2021
• MNRB is trading at P/BV of 0.35x vs. LPI Capital at 2.6x and Syarikat Takaful Malaysia (STM) at 2.4x P/BV (based on latest BVPS), which command far superior ROEs (16.7%/26.5%) compared to MNRB’s 9MFY21 annualized ROE of 8%. Upside/downside risks: reinsurance portfolio expansion, exceptionally large claims

Big Jump in 9MFY21 Profits Led by Reinsurance Diversification

MNRB saw its 9MFY21 net earnings jump 48.4% yoy to RM140.1m amidst a challenging year. The Group’s reinsurance subsidiary, Malaysian Reinsurance Berhad (Msian Re), saw a 60% yoy expansion in net profit driven by better underwriting performance (gross premium up 10.3% yoy, led by diversification) while its General Takaful unit’s net profit rose by 65.7% yoy on robust gross contribution growth of 36.5% yoy. The Family Takaful unit’s net profit however declined 40% yoy. Group ROE grew from 6.1% in FY20 to an annualized of 8%.

Key Strengths – Management Team, BancaTakaful Partnerships

MNRB’s key strengths lie in its: i) strong management team and long track record as a national reinsurer operator; ii) bancaTakaful partnerships forged through AgroBank, CIMB Islamic Bank, and Hong Leong Islamic Bank; and iii) operations in more diversified markets in reinsurance (Asia, India, China) and having an Islamic Retakaful arm to extend Shariah-compliant underwriting in the MENA market.

Trading at Low P/B Multiples of 0.35x (based on Dec20 BVPS)

Currently, MNRB is trading at a low P/B multiple of 0.35x (based on Dec20 BVPS) which is at a steep discount compared to insurance players such as LPI Capital (P/BV of 2.6x, based on Mar21 BVPS) and Syarikat Takaful Malaysia (P/BV of 2.4x, based on Dec20 BVPS). As a reinsurance player, MNRB’s ROE (9MFY21 annualized at 8%) is not as superior as the pure insurance players’ ROE (LPI’s FY20 at 16.7% while STM’s FY20 at 26.5%), largely due to its riskier underwriting and capital raised in FY18-FY20.

Source: Affin Hwang Research - 18 May 2021