GI last 12-month ROE was about 16%. If sustainable, a 1.7x P/B multiple similar to LPI is fair. The GI valuation will be RM2,611m * 1.7 = RM4,439m

I’m not sure about the fair multiple for life business.
Net CSM + tangible shareholder equity = RM4,497m.
Market leader AIA which has high growth rate in new business value, is currently traded at 1.3X EV (~62/48).
Shouldn't Allianz Life be valued at a discount to AIA?

Thanks for sharing the source. I missed the Public Bank report that “Mexico operations
slipped into a loss of RM0.4m, mainly due to unfavourable currency fluctuations”
So it means the operation was close to breakeven during Q2.

If I look back past 15 quarters since they started reporting the JV results, not only the Mexican progress was behind time, but the performance was also erratic. For example, loss in 3Q23, profitable in 4Q23, then loss again in 1Q24.

Have they really turned the corner?

Reporting currency is in MYR. Anyway, a two-step exercise of Peso to USD, then USD to MYR, the effect is the same.

US companies busy buying back shares but Malaysian companies busy splitting them.

Good point. Can you share how you deduce that JV was making profit but peso depreciation turned it into a loss? I couldn't find those info.
When I checked the Mexican Peso to Ringgit chart, it shows Mexican Peso has been strengthening against Ringgit from 2019 to mid 2024. The recent peso depreciation happened after mid 2024. But the quarter report is up to Jun 2024 only. In other words, the recent peso depreciation hasn't started during the reported quarter (worse to come in next quarter?)
Rightfully during the period when Peso was strengthening, it took fewer Peso profit to translate into each Ringgit profit. I wonder how the company turned a favourable forex condition (until mid 2024) into an unfavourable result.

In 2021 Public Bank wrote that management targeted Mexico to breakeven by year end. Breakeven utilization set at 30%.
Latest report shows utilization is 35%-40%. However, there have been 2 continuous quarters of share of loss for JV as shown in the P&L. The results over the past 15 quarters have been inconsistent.
Given the company's fortune depends on commodity prices, and with the run up in share price since the last few months, IMO the risk reward is no longer appealing.

Any ordinary user could only "report abuse". If his action auto triggers the platform to delete reported posts, the admin needs fix their system; recover the censored posts; explain the rules and suspend those who continue to abuse the system. I don't see i3 admin doing any of those!

I may not have strong convictions like dragon.
But I’ve benefited greatly from his analysis, including YTL Power at 60 sen.
It’s a shame that i3 keeps censoring his posts.
It only damages the platform's credibility, especially when your users are reposting dragon’s comments.

Whoever out there not agree with dragon328 should debate with him. It’s shameful to resort to admin power to censor views that you don’t like.

The Federal Court ruling cannot be further appealed. Wonder what can Prudential do. Negotiate and pay?

Only after reading yesterday news that I realize Prudential parent company owns just 51% * 50.99% = 26% of Prudential Assurance Malaysia Bhd.
If Prudential can’t obtain greater control as per Federal Court’s decision, wouldn’t it discourage Prudential from growing its Malaysian market?
How would Prudential agents react?

I see. Maybe for non-IT staffs. For IT they transferred the majority of Malaysian staffs to the new regional delivery center Allianz Technology Sdn Bhd

What do you mean?

The business could be supported by the newly set up shared IT services in Malaysia. But any possible synergy with Allianz Malaysia?

This is one of the rare property companies with good cashflow, strong balance sheet and consistent dividend.

The limited capital gain recently is expected because much of Matrix’s good qualities have been priced in long ago. Note its share price has already exceeded pre-pandemic level in 2021 while others were still struggling. In fact not long ago Matrix had the least discount to RNAV among peers.

As the market sentiment shifted recently, with the frenzy over data center, Johor and so on, it’s time for IOIPG, SP Setia etc to shine and recover from their once depressed valuation.

800k of ICPS have just been converted into ordinary shares.

ICPS provides 20% extra dividend but harder to sell. For 800k volume, if they cannot be sold in blocks, it’s better to convert into ordinary shares rather than sold at a discount to ordinary shares.

Based on shareholding information, I guess the shareholder is either EPF, or one of the Public or AHAM funds.

For Q2, check the AGM minutes and key matters discussed at its website. Under corporate governance.

The company explains “These are prepayments to suppliers which have been settled
after the end of FYR 2023.”

However, when I refer to Note 9, there is a separate item for prepayments. I don’t understand the difference.

If it goes through, how might it affect Allianz Malaysia?

I have nothing more to add on the dividend yield debate.

Prudent you’re right to point out there is a caveat on share buyback. When a company buys back its shares at a price above its intrinsic value, it destroys shareholder value. Top Glove’s folly has made share buyback a dirty word in Malaysia. Now every management in Malaysia would cite Top Glove as the reason why they don’t want to buy back their shares when they are hoarding cash and share price is depressed.

However, if the company buys below intrinsic value, remaining shareholders actually benefit. As the share base is shrunk, the earnings per share is boosted, making the remaining share more valuable. It’s the reverse of dilution effect. The slice of the cake gets bigger through buyback at below intrinsic value.

That’s why Berkshire Hathaway buys back its share too, but only when Warren Buffett believes the share price is value for money.

In the AutoZone example I cited where it bought back 84% of shares over 25 years, share price rose from $22 to $2,500.

There is a common yardstick on whether RHB has put its retained shareholder capital to good use. It’s whether it earns above its cost of equity (or cost of tangible equity to be more precise).

My rule of thumb for companies like RHB is COE at 10%. (For comparison, Hong Leong analyst put it at 10.9%).

During FY21, 22 and 23, RHB published net return on average equity was 9.6%, 9.6% and 9.5% respectively, slightly below bar.

Under TWP24, RHB aimed for 11.5% ROE by 2024. It’s probably a tall order as 1Q24 ROE was only 9.2%.

Agree. RHB maintained its DPS at 40sen from FY21 to FY23. On adjusted basis, dividend per share has actually grown.

However, many factors are also at play besides the dilution effect. The most important being the economic environment of pre-Covid (FY21) and post-Covid (FY23) greatly affect earnings outlook and dividend decisions.

For comparison, during the same period of FY21-FY23, Maybank, which also has DRIP (but stopped in 2023), DPS increased from 58sen to 60sen.

Hong Leong Bank, which do not offer DRIP, DPS increased from 50sen in FY21 to 59sen in FY23 (its YE is mid-year).

Anyway, as I mentioned in RHB forum before, shareholders who hold RHB mainly for its high dividend yield should be happy with the continuous 40sen DPS for the last 3 years. Just don’t look at or compare the share price with other banks.

As for shareholders who aim for total return, it’s important to watch multiple metrics besides dividends, and that becomes not so simple. Shareholders have opted for higher dividends for growth (which underpins share price appreciation).

At the risk of getting drawn into this argument, I can’t resist to put forward my two cents.

In my view, both sides have their points. What Prudent and many have stated stay true to the conventional way of dividend yield calculation, which is dividend declared over a 12-month period (40 sen) divided by the share price. This is the convention. Company annual report and analyst follow the convention. Else we could have endless arguments.

The way I understand it is, Gambler puts it is from the point of view for shareholders who DON’T want to get diluted by the DRIP. For this camp of people, they have no choice but to subscribe the DRIP.

For them, the starting point is 30 sen dividend, as the other 10 sen is tied up by the DRIP subscription.

Of course, one may argue, don’t they get an extra 10 sen worth of RHB share? Why not counting that as part of the dividend?

But for the “don’t want to get diluted” camp, that 10 sen of DRIP has two parts – one part is merely to keep up and don’t get diluted; another part is the extra “earns” from diluting others who don’t subscribe the DRIP offered at discounted price. For this camp of people, only the second part truly counts as “dividend”.

Based on this thinking, the “real” dividend will be somewhere between 30 sen to 40 sen.

However, whether it’s right or wrong to calculate dividend yield in this way is a moot point. What is important in the long run is the total shareholder return, not dividend return. And for this reason, it’s not advisable to invest merely based on dividend yield.

We may insist that the only acceptable way to calculate dividend yield is the conventional 40sen/ share price. However, to have a complete picture, one cannot ignore the dilution effects which, when compounded over the years through successive rounds of DRIP, will leave a noticeable mark. If the shareholder wants to quantify the effect, he will be back to some form of calculations like the above. Whether that calculation is called dividend yield or not is beside the point.

The opposite effect of DRIP is share buyback/ share repurchase. This is where US companies excel at (partly also driven by US tax consideration). Many US companies have low dividend yield if we were to follow the conventional way to only counting dividend distributed as “real” dividends (and ignore the buyback). But if buyback is included, the picture looks very different. For example, AutoZone has repurchased 84% of its share from 1997 to 2022. Look at the price chart for the effect.

Final point – no matter how we argue about dividend yield, it will have zero impact on how money managers view RHB. They are the one who set the share price. They consider many other factors besides the dividends.

@dragon328, thank you for your reply

@dragon328, thank you for the very useful explanation. It saves me lots of efforts and possibly dead ends in my research.

Your assumed capex of RM1.5b for 36MW co-location data center (or US$9m per MW) is in line with what I read. The cost for building a green field data center in US is in the range of US$7m to $12m.

I also checked out the RHB report you mentioned which says “we impute a higher AI- DC valuation assuming 15x EV/EBITDA (from 12x previously; still below global peers’ average of 18x) with a 60% ramp up (from 20% ) in 100MW DC, USD3bn capex, and 14% IRR”

The AI-DC capex is US$3,000m/100MW = US$30m per MW.

As I understand (correct me if I’m wrong), the AI DC requires much higher capex because YES Communications will own the servers and sells the service

Next, I tried to do some sanity check. Nvidia list price for H100 is about US$30k. A back of the envelope shows:
Power consumption of H100 is 700W.
Number of GPU per MW = 1,000,000/700 = 1,429
At USD30k per GPU, the GPU cost alone per MW is US$43m

The GPU cost alone is much higher than RHB’s US$30m per MW assumption. But I suppose YTL Power can get a good deal from Nvidia. Besides prices drop over time. Right?

Can you share a bit more details on your DC and AI-DC valuation, like the CoE, CoD, WACC? Given computing equipment become obsolete fast, what are the replacement capex assumptions? Would you consider sharing your spreadsheet in your next blog? That will be really wonderful.

I just read the Hong Leong report on 23 Aug 2023. It mentioned “Data centre of 48MW (32MW undertaken by SEA Limited) is guided to provide RM100m PBT when fully commissioned (in stages over 4 years)”

The RM100m PBT is very close to my estimate above of RM101m based on floor space by referencing Keppel DC REIT. The difference is company website mentions 72MW and analysts talk of Phase 1 being 48MW.

DCF is a better valuation approach, but there is insufficient details to use that method.

But I see some similarities with property development business, where analysts will estimate the contribution of individual projects. I also observe that typically the projected contribution is around 5% to 15% of the GDV.

Can the same concept be applied here, where the DC business valuation is somewhere between 5% to 15% of the project cost?

Hong Leong analyst used MW as the basis for valuation (at 8,400/200 = RM42m per MW). I wonder, for colocation DC (i.e. 1), will lettable floor space be a better metric?

Keppel DC REIT 2023 Annual Report mentions that it has 3.066 million sf of lettable floor space. FY23 core PBT (I ignored FV changes of investment properties) is SG$166m. So it works out that PBT is SG$54 psf (or RM189 psf)

Actually, Keppel DC REIT is not entirely on co-location business. The fully-fitted segment provides better margin. Therefore, the PBT for co-location service is actually even lower than SG$54 psf

According to YTL Power company website, YTL Johor Data Center 1 is up to 72 MW with 535,000 sf.
Applying Keppel DC REIT valuation (which is already at the higher end), the PBT is 535,000 * RM189 = RM101m

Even if extend to 200MW though future development, the projected PBT is only RM101m * 200/72 = RM281m
Assume 15% tax (there will be some tax incentives), net profit for 200MW is RM239m

Even at 20X PE, valuation is “only” RM238m * 20 = RM4.8b, about half of Hong Leong’s RM8.4b
Not to mention my approach also suffers from the fallacy of putting a 20X PE on earning streams which will take at least a few more years to develop.

@dragon328, two years ago you made the bold call that YTL Power would be 10 bagger. This is the best call I’ve ever come across! Thank you,

Since then, data center, which was only a small part of the valuation then, has become prominent. Not to mention the subsequent development in AI Data Center.

However, it’s very challenging to put a value on the DC business. I have a few questions and hope to get your input.

First, let’s start with Hong Leong’s latest report. It has two parts:
1. YTL DC – valued at RM8.4b by assuming 200MW, and valuation extrapolated from Keppel DC REIT 300MW (its latest market cap is SG$ 3.136b or RM11b)
2. AI DC through the 60% owned YTL Communication – valued at RM12.9b based on 25x FY26 P/E

On (1), MIDF also wrote that “Rollout is expected to be gradual with the first 8MW having been commissioned early-May with further additions of 8MW per annum thereafter.”

I understand SEA has committed on 32MW. It will take delivery in stages. It just feels that it will take a few years to fully deploy the capacity.

So the valuation approach by Hong Leong analyst is a bit troubling. In (1), he applied the valuation of Keppel DC REIT (which is already up and running) on YTL DC (which will not be fully deployed at least for a few years).

I’m not sure how he worked out (2). The total value is RM12.9b/0.6 = RM21.5b. Minus the telco business which is about RM1b, he put a value of RM20b on the future AI DC without mentioning the basis.

FPI boss is cautious when answering certain types of question, no matter how the questions are crafted. This can be seen from past AGM minutes. For example, ask anything about its clients he would tell you sorry they’re bounded by NDA with the clients. Probably he believes that even telling you product features would have given away too much and jeopardize the NDAs!

Based on my own experience, FPI is among the average. No worse than many companies I’ve come across.

Very few company management/ board go all their ways to make sure shareholders understand how the company works. One of the exceptions is Allianz. It gives me very good impression.

@wsb_investor,

I looked up the last 12 month results of a few Bursa insurers.

Company, Net Profit, Latest Equity, ROE
MNRB, 428m, 1334m, 3%
Manulife, 77m, 1270m, 6%
Allianz, 731m, 5141m, 14%
LPI, 341m, 2211m, 15%
STMKB, 347m, 1679m, 21%

They are in different sub-segments - P&C, life, or both; some conventional, some Takaful. But regardless of sub-segment, ROE measures how efficient the company is in deploying shareholder capital.

Not too surprised to find that Allianz and LPI are “better” than MNRB and Manulife.

But STMKB remains a puzzle. Post IFRS17, ROE declined a bit, but still above 20%, the highest among peers.

Is STMKB really the most efficient insurer when it comes to the use of shareholder equity? Do takaful operators need lesser capital as compared with conventional?

Any idea?

Berkshire Hathaway announced it has acquired 6% of Chubb.

The EPS has climbed from $10 in 2016 to $22.5 in 2023, a CAGR of 12%. But despite share price increase, Chubb is currently priced at 12X forward PE. The valuation looks reasonable even though it was said that good years might have peaked.

Next I looked up Allianz SE, the forward PE is only 10-11X. Dividend yield is above 5%.

Although developed countries may have slower growth rate, but matured market may enjoy higher valuation. These two large insurers don't look expensive if compared with Malaysian counterparts.

2024 first interim dividend has reduced by 16%

The Edge covers the privatization offer for Great Eastern Holdings (GEH). There are a number of interesting points.

0.7X P/EV is the cheapest acquisition in Singapore in 20 years.

The second cheapest is 2021 HSBC’s acquisition of Axa Singapore life business at 0.8X (incidentally, HSBC Malaysia is Allianz Malaysia banca partner)

GEH was traded at 0.5X P/EV before the acquisition offer. I might be wrong, but I suspect one reason for the low valuation was the low liquidity prior to the offer. OCBC already controlled 89% and a few other shareholders are long term investors like Sg Bagan. Sometimes only a few thousand shares traded in a day. Similar situation to Allianz just not long ago.

While OCBC moves further towards a financial supermarket model that include banking and insurance, DBS and UOB believe otherwise as they believe insurance “manufacturing” and distribution require different core competences.

If I look at Malaysia, our largest bank Maybank owns Etiqa and until now has no plan to float it. A looser arrangement is Hong Leong Bank distributing for HLA which is sister company.

So who is right?

Thanks for your input.

Using today closing price, Allianz total market cap is RM7,694m.

Based on Maybank's input, the Jun 2023 general insurance equity is RM2.5b, and life insurance EV is RM3.5b.

Working backward, assume 1.4X book value for the GI business, the implied value of life business = RM7,694m – RM2.6b*1.4 = RM4,194m, or 4194/3500 = 1.2X EV

I hope Allianz EV methodology is conservative and prudent.

It’s possible.

However, the overall YoY trend is like this
1) decline in 1H23
2) increase in 2H23
3) decline again in Jan-Feb 24
4) increase in Mar-Apr 24

If 2023-24 was adversely affected by El Nino, UP should not have enjoyed bumper crops in 2H23. But they did as 2H23 CPO output was 156k MT vs 2H22 135k MT, i.e. +15% YoY.

More likely multiple factors were at work. Labor arrival in 2023 as suggested by Sardin played a part. Maybe local weather condition too. Biological resting phase once mentioned by the management may have also skewed the data.

The Tanahrata replanting during 2019-21 should have started to contribute. However, from the overall group perspective, the contribution should be gradual without any step change. For the past number of years, typically 1000+ ha is replanted each year -- except 2,444ha in FY19 after Pinehill/ Tanarata acquisition; and 462ha in 2022 probably due to labor shortage. So improvement due to high-yielding seeds should happen all the time but gradually.

In short, I can’t figure out any specific factor leading to the up and down in output. But without doubt, the continuous replanting regardless or market conditions will steadily lift output over the long term.

CPO production for Apr 23 was exceptionally low at 18k MT. Output for Apr 22, 21 and 20 were much higher, in the range of 21k-23k MT. In fact higher than Apr 24.

So last traded price is 0.5X EV. Privatisation offer is 0.7X EV.
But if assumptions in the EV methodology are broadly correct, rightfully the net present value of future profits should be roughly the same as the EV, even if there no more new business, right?
Was the market being too pessimistic with Great Eastern, or there are hidden risk in the EV assumptions?

Is RM11 possible? What could potentially drive share price above RM11?

Look no further than the the effect of 50 sen special dividend announced on 21 Feb.

Just a few days before the announcement, the share was traded at around RM9.4. But share price closed at RM10.3 on the day after the announcement. It was a 90 sen gain on 50 sen dividend announcement.

On 26 Mar just before the ex-date, the share price closed at RM10.7, representing RM1.3 gain.

In other words, the 50sen special dividend announcement has moved the share price higher by RM0.9 to RM1.3.

What has actually happened?

By reducing its cash, which earns a mere 3% bank interest, the company has actually become more valuable. The company intrinsic value has increased even though its cash balance has become smaller!

It shows all the while the market has been quite rational. It discounts excessive cash held on the company’s balance sheet.

Before the special dividend announcement, every excess RM1 cash is probably valued at just 20 sen. In other words, the net cash per share of RM5.4 before SD distribution contributed just RM1 to the share price.

But when the company signaled a change in attitude by returning 50 sen to shareholder, the market started to value its cash balance higher. Each RM1 in cash was now valued at probably 40sen, i.e. the RM5.4 net cash per share was valued at RM2.1, moving the share price higher by RM1.1.

Comes next quarterly report, if the company were to announce a 39 sen regular dividend + another 50 sen special dividend, not only will share price go above RM11, it may even go beyond RM12 as the market values its cash even higher.

Instead of hoping for market action, we have to hope for the company action!

Yeah. UP is proud of its research.

Looking at the UP Group CPO Yield chart, the UP Group yield has widened its lead over Malaysian average since 2016, which is a year with severe El Nino impact.
I suspect one of the reasons is the low CPO price during mid 2010s discouraged other companies from investing while UP ploughed on. The difference only showed up years later.

I see. I don’t follow other planters in details. However, when I tabulate the CPO yield per hectare of several large and mid-size companies like IOI, Simeplt, KLK, Kim Loong and Innoprise, they’re still about the same or below 2015/16 level. UP is the only one which has made sustainable gain due to improving FFB yield.

Yeah labor availability would help. So is uplift in productivity. The Annual Report mentions that UP Malaysia now runs its operation with 10% lower workforce despite 9% larger land bank as compared with pre-Covid period. Quite amazing.

@Sardin, refer to your statement. Do you mean that 2H23 was good weather and therefore it was exceptionally good for UP?

BTW do you study and compare against production data of other plantation companies? If yes, mind sharing the summary of your data?

Does UP refinery use own crop when CPO price is high, and use 3rd party crop bought at spot price when CPO price is low?

With due respect, I doubt it works this way.

If the refinery uses 3rd party crops bought at spot price on a large scale, what will its plantation business do with own crops?

If they sell their own crops, it’s still at spot price.

If they stock them up on a large scale waiting for better prices in the future, it will be speculation which is against their purpose of hedging in the first place. Besides it’s also unclear to me for how long the produce stocks can be kept in inventory.

In fact, as deduced from the balance sheet, UP keeps not more than half of a month of produce stocks.

@JrWarren,
The 20% QoQ production decline in 1Q24 (versus 4Q23) cannot be explained by seasonality alone.

From historical first quarter perspective, 1Q24 output of 55k MT is probably normal.

But 4Q23 output (70k MT), and in fact 3Q23 output (80k MT), are EXCEPTIONALLY high.

I draw this conclusion from the published production data. On YoY basis, 4Q23 and 3Q23 have recorded 15% to 16% increase. Quite unusual.

Own CPO (MT) Quarter YoY
55,446 1Q24 3%
70,149 4Q23 15%
79,641 3Q23 16%
62,295 2Q23 -7%
53,888 1Q23 -7%
60,851 4Q22 10%
68,942 3Q22 -4%
66,731 2Q22 0%
57,866 1Q22 -1%
55,474 4Q21 5%
71,449 3Q21 6%
66,460 2Q21 6%
58,217 1Q21 -2%

I wonder if the 2H23 output surge is an aberration.

@ooihk, what are the implication of Hari Raya and CNY on the same quarter, and by how much?

Note B2 explains that refinery segment revenue declines due to “due to lower sales volume”, I believe in tandem with the previously mentioned lower production volume.

QoQ, segment PBT declined 58%, and segment operating profit declined 56%.

Three reasons cited in the note
1. Lower volume hence lower profit
2. Higher forex loss at JV Unifuji (where share of profit declined from RM8m to RM1m)
3. Higher hedging losses as Unitata, which sold contracts earlier at lower prices, later had to unwind position and bought at higher prices to cover earlier position. Such hedging losses happened in a rising market just like in 2022. But when Unitata sells refined products, hopefully at higher prices too, a better margin could offset the losses.

Don’t know how to estimate the hedging effects on profits/ losses. If anyone has any idea, please share your working.

On plantation revenue, 1Q24 CPO volume was far lower than 4Q23. Note B2 explains “The revenue for plantation segment decreased by 8.3% in the current quarter from the preceding quarter due to lower production”

This was partly due to seasonality as CPO production declines from October to February (refer note A3).

However, a bigger factor is 4Q23 CPO production volume was exceptionally high at 70k MT, 15% higher than same period in 2022. 1Q24 CPO production volume has since moderated back to 55k MT.

Was the high production volume in 2H23 an aberration? How about decline in Jan-Feb and subsequent recovery in Mar? Has anyone studied other company outputs and how do they compare? Did the management say anything during the AGM?

The 1Q24 CPO production volume 55,446MT * RM4,179 = RM232m is about 75% of 1Q24 plantation revenue. The other one quarter revenue may be contributed by PK, coconut and other factors I’m not aware of.

I compared 1Q24 results against 4Q23. This is what I found. For those who have studied please share your findings too.

4Q23 revenue: RM544m
1Q24 revenue: RM477m (-12% QoQ)

4Q23 operating profit: RM255m
1Q24 operating profit: RM171m (-33% QoQ)



Plantation segment:

4Q23 segment revenue: RM337m
1Q24 segment revenue: RM309m (-8% QoQ)

4Q23 segment operating profit: RM218m
1Q24 segment operating profit: RM154m (-29% QoQ)



Refinery segment:

4Q23 segment revenue: RM376m
1Q24 segment revenue: RM320m (-15% QoQ)

4Q23 segment operating profit: RM38m
1Q24 segment operating profit: RM16m (-56% QoQ)

Problem with holding a physical AGM near its estate is that few loyal shareholders can attend. I strongly urge the management to consider holding a hybrid AGM next year, like what Bursa has done. UP can set the example as one of the first few listed companies that pioneer hybrid AGMs

Given such challenge, and BNM's caution in approving premium increase, is medical and health insurance a good business relative to other types of insurance? If not, why do insurers still offer such policies instead of freeing up their capital for other types of insurance business?