Disposal by key shareholder. Although it's insignificant to its total 238 million shareholding, I wonder why.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3232124

@Anxious,

The stock market is a good vehicle to grow wealth for the long term. Over the long run, stock market return > bond market return > cash/FD return.

However, the key is in the long run, preferably over at least one business cycle (5 to 10 years). Another key is stock "market", i.e. a portfolio of stocks, not just a few individual hot stocks.

At the risk of sounding like a broken record, it's crucial to get the mindset and priority right:

1. Set investment objectives - e.g. funding children education; 30 years of retirement in x years with a certain lifestyle; and so on

2. Understand one's risk profile. The profile can change with more understanding through reading, especially reading the stock market history since past patterns keep repeating

3. Set aside emergency fund. Assess the need for insurance

4. Liquid and safe assets (cash, FDs, low risk bond funds) sufficient to cover 3, 5 or 7 years of expenses depending on risk profile (after factoring in other dependable incomes like from stable employment).

5. The remaining in risk assets of varying liquidity, like stocks/ equity, property, and even low correlation assets like precious metals.

But for step 4 and 5, some financial planners advocate risk assets allocation % = 100 - age , or even 120 - age for those with higher risk appetite.

Only at step 5 one considers how much to allocate into stock market, and then the choice of investment vehicles:

a) individual stocks, for people who like hands on; have time; have interest; believe in ability to beat the market
b) equity unit trusts - choose established fund houses; reasonable fund size and expenses; decide domestic versus foreign allocation; don't chase after hot funds
c) low cost ETFs to get exposure to major foreign markets (US, Europe, Asia Pacific)

A simple and good strategy for unit trust and ETFs is to do dollar cost averaging. Alternatively, use reversion to means for long term advantage.

After going through the steps, for many people, individual stock investment should only be a small percentage of total wealth. It's also best to start small. Only increase if there is track records to back up.

If a promoter predicts a stock to lose 40%, and another to gain 300% to 500% in a year, stay away. No one has such predictive power.

Checking his track records in his past comments, just 3 months ago he advised people to sell DNEX (!) to buy VIS, exactly when VIS share price peaked. VIS price has since lost 40%

___________________________________________________________________________
Stock: [DNEX]: DAGANG NEXCHANGE BHD

Sep 25, 2021 10:33 AM | Report Abuse

@autoven this stock wont go limit even QR is good....
VIS is different...it can go limit up ....but not for QR....think wisely.....

This kind of small NOSH easily conered all by sharks n bilis , if u are early birds u lucky , if u are late comers then u prepare slaughteted by sharks , a fast up stock will also fast drop if they font have FUTURE PLAN !


TO HOTSTUFF:

BETTER SELL OFF YOUR 1 M TICKETS TO ALL PEOPLE WHO ARE DESIRE TO DNEX , I BELIEVE U REALLY HAVE 1M TICKETS ON HAND NOW , I REALLY TRUST U MAN !

@jolnce, the use of historical or even current dividend yield can be misleading when profit trend is unstable.

Harta's dividend policy is to distribute 60% net profit as dividend. When profit normalizes, future dividends will normalize too.

Using my above example (just a wild guess) of RM500m annual normalized profit. Divided by 3,428m share base, normalized earning per share is about 500/3,428 = RM0.146 or 14.6 sen. A 60% distribution yields about 8.8 sen per year. The projected dividend yield is less than 2% at current share price of RM5.

Of course, the normalized annual profit could be higher and hence higher DY. But this is still guesswork.

While Harta share price looks under pressure in the near term, I'm skeptical of anyone's ability to predict 40% drop. Why not 20% or 60% drop. How are the predicted number derived?

China's competitions and coming quarterly loss are well known to the fund managers, whom collectively set the share price due to their large volume. These known facts are by and alrge already reflected in the current weak share price. What's important is whether they will turn out to be better or worse than average market expectation.

I agree short term investors should stay away. Even long term investors who have too much exposure may consider using each rebound to cut holding down to the level that they can sleep well. But for patient investors with little exposure, continuous share price decline for a well managed company means should start doing more homework.

The one time hit due to prosperity tax should not be a big concern now (unless more "one time" taxes are coming!) The assumed RM350-400m tax hit is about 6% of equity of about RM6 billion. Painful, but is expected since the budget announcement, and the hit is well defined.

The biggest uncertainty is about Harta's future margin due to ongoing competitions.

Harta's annual net profit for FY18, FY19 and FY20, i.e. the pre-Covid time, was over RM400m a year. Assuming the normalized net profit in FY23 is RM500m, the current market cap of RM17 billion implies a forward PE of 34 times.

The market accepted such high multiple in the past as the company was seen as a high growth stock. But if competitions proven to have erode this advantage (yet to be seen), then Harta's future margin could be much compressed, and a lower multiple is deserved.

Of course, the RM500m annual profit is just a wild guess without much evidence. One may adjust the number and multiple accordingly to get a different answer.

The key is to continue tracking the competition, especially foreign players' margin and expansion plan, and then project at what level Harta's margin will eventually settle.

GST (with suitable exemption) makes sense. This was one of the few thoughtful policies introduced by the then Najib's government. Of course Najib was also forced by circumstances, which were the deteriorating fiscal situation, collapsing oil price, and the big hole from 1MDB!

Unfortunately his GST implementation was poor. And the dissatisfaction was exploited by the opposition. In fact I suspect more people voted for PH for lower prices through GST abolishment, free toll and so on, all populist measures, rather than the more abstract issue of abuse of powers, corruptions or 1MDB scandal.

After all, GST is regressive. Although higher income families pay more GST due to higher consumption, as a proportion of income they pay relatively less. Besides they are mostly net savers. On the other hand, lower income families usually consume all they earn, and sometimes over. So they will only pay proportionately more tax if GST is introduced.

Given only about 1 in 6 Malaysian wage earners pay income tax, given a choice I bet the 5 non-income tax paying person would rather the sixth person, and corporations too, to continue paying the tax. And more if necessary. Politicians from every single party will pander to this majority group. Who care about the long term economic consequences or loss of competitiveness?

Many urgent reforms are needed in Malaysia. The other is to streamline the size of public sector workforce that I mentioned earlier. About half of the Malaysian government revenue collected are now spent on civil servant emolument and pension. And the spending continues to grow fast! This is a ticking time bomb. The government can tax the corporations and high income earners till they run away from this country and it will still not be enough to meet the growing appetite.

But who has the political courage to advocate for painful reform? Do you think they will get the votes? Expect complacency to continue until it develops into a crisis!

@Masterus,

I somewhat disagree. Reopening of border may have some limited upside for medical sector, mainly to higher end private hospitals like IHH (but its presence is not limited to Malaysia.

Healthcare is the largest segment for Edgenta. But the spillover effect is at best limited given it only plays supporting roles. However, with or without border opening up, Edgenta can still benefit when patients in Malaysia, Singapore and Taiwan go back to hospitals for their postponed surgeries.

Toll road servicing is the second largest contributor. I don't think tourism has any significant contribution on toll road traffic, and therefore indirectly the demand for toll road maintenance .

Edgenta property exposure is small. Anyway the demand, if any, will be at high end. Let's not forget property sector has been languishing with weak (local and foreign) demand even before the pandemic.

BAT Malaysia boss carries the MD title. I'm sure his biggest investor, BAT PLC, would like to see dividend and earning growth too. But he is not in the position to deliver.

The lack of affordability due to high duty has forced BAT Malaysia to go after the lower margin value-for-money segment.

Yes, plantation companies have been paying windfall tax for years. The Indonesian government also recently mandating their plantation companies to reserve 20% for local at low price.

On the subject of prosperity tax. I actually believe Malaysian glove producers should count themselves lucky.

Given the poor government's finance position (though we can always argue about the corruption and waste, and the 1.7 million civil servant, a "world class standard" of 1 to 18 (versus around 1 to 100 for many developed countries), taxing the corporate is unavoidable.

But Jolynce is right. Politicians from both sides of the divide, and in fact former CIMB's head Nazir Razak, the economist Jomo, all advocated for windfall tax on glove companies. This is not helped by a certain glove industry captain who lost his cool and bragged about being the largest company in Malaysia, and soon to be Fortune 500!

All the talks among glove investors and media in later 2020 bragging about the sky rocketing share price, and lavish share buyback, and later the poor living condition of foreign workers, amid the severe pandemic suffered by the general population, has certainly painted a very negative image on this industry. So why not re-distribute the windfall from the greedy (companies and shareholders) to help the needy (Malaysians in general)? The glove industry receive little sympathy from the public.

Of course a windfall tax could be detrimental to investors' confidence on further investment in Malaysia. To the credit of Finance Minister Tengku Zafrul, he went for the one time prosperity tax on large profitable corporations instead of narrowly targeting the glove sector. As a results, many large corporations like banks, insurers, utilities, plantation companies are sharing the burden with glove producers. So glove companies should not complain (although this is scant consolation to glove shareholders who were late to the party)

Nevertheless the prosperity tax still contains some unfair elements. First the profit threshold of RM100m is set at company level. Listed holding companies with many subsidiaries, each with profit below RM100m, can escape this tax. Second the tax is based on fiscal year not financial year. Companies which make a lot more in fiscal year 2021 than calendar year 2022 will have to pay more.

Hartalega has been unlucky on both counts, for it has a simple corporate structure and early financial year that starts in April.

@jolynce,
Should avoid using current quarter capacity plan to project future demand. Read the past few quarter reports in succession, you will find that the management has scaled back/ pushed out their expansion plan. Not just for Harta, but also Top Glove.

Caution is actually good. But we also have to see how foreign rivals react. Last year Sri Trang told The Edge it wanted to expand to 80b by 2024, and 100b by 2026. Intco Medical has a near term plan for 120b capacity. I'm not sure their latest position. Given by and large gloves are commodity products, if rivals continue to expand by sacrificing margin, Harta cannot afford not to respond. Otherwise it will lose market share.

Refer to Harta's past annual reports. Long term ASP trend is down (this is like the principle of economics; also applies of other manufactured goods). It was about USD40 per 1k in 2008, about USD30 in 2015, and approaching USD20 before the pandemic. The high ASP during Covid 19 is an aberration.

What is important is the continuous uplift in efficiency. Pre-pandemic Harta has the highest net margin among its peers. But this higher efficiency has also been reflected in Harta's higher share price multiples.

@kinuxian, please read my comment just directly above yours. Harta reported PAT RM3.43billion from FY22 Q1 to Q3.

@bang_miskin, perhaps my previous comment wasn't clear. This is what I mean.

For 2Q2022 (Jul to Sep 2022), utilization was about 63%. The low utilization could be attributed to 2 weeks closure due to EMCO, and subsequent production with mandated reduced manpower.

For 3Q2022 (Oct to Dec 2022), utilization was about 52%. The low utilization could be attributed to
1. Shipping disruption; and
2. Customers taking wait and see approach, waiting for price to fall further before placing more orders for replenishment.

The reports I read did not mention which is the greater cause. But I guess lack of urgency among customers is the bigger reason. The market is awash with capacity now. So investors should not get excited when there is another wave of Covid, especially the small rally on Monday on Malaysia (!) Omicron concern.

Prosperity tax is based on financial year, not calendar year. The 33% tax will be imposed on Harta's earning from Apr 2021 to Mar 2022, including the super profitable 1QFY22 (Apr-Jun 2021).

The RM350m to RM400m expected tax for next quarter includes the prosperity tax not included during the previous 9 months.

JN88,
By late 2021, Harta had already commissioned all lines in Plant 6, and 4 out of 10 lines of Plant 7. The total capacity then was ~42 billion pieces per annum. Today it still has one more line at Plant 7 to be commissioned, implying a total capacity of about 43-44 billion.

Based on data I've compiled from analyst reports at every quarter, the utilization and shipment quantity for the past 5 quarters are listed below:
3QFY21, 95%, 10 billion
4QFY21, 64%, 6.8 billion
1QFY22, 96%, 10.4 billion
2QFY22, 63%, 6.6 billion
3QFY22, 52%, 5.5 billion.

Under Free On Board (FOB), sales and profit are recognized when goods are loaded onto vessels.

https://www.investopedia.com/terms/f/fob.asp

3QFY22 result was disappointing. The ASP decline to about USD43-44 per 1k was expected. But the low utilization of 52% was not. It was almost 10 percentage point lower than 2Q2021, which was itself a low point due to EMCO closure.

This was partly due to buyers continuous wait & see strategy, and was also partly due to shipping disruption. Either way it is not good. At current capacity of about 43 billion, Harta could have churned out about 11 billion pieces a quarter, but only sold 5.5 billion (it might have produced a bit more but sales is recognized on shipment due to FOB incoterm)

According to analyst reports, management expects ASP to decline to US$27-28 per 1k by 4QFY22. Margin could even dip below pre-Covid level in the near term.

Next quarter should also see Harta reporting a loss for the first time. Assuming profits were to fall back to about RM100 million (like pre-Covid), the one time prosperity tax of about RM350m to 400m will set it back to a loss of about RM250m to 300m, or just about wiping out the profits in Q3 and Q4.

But I don't think the Chinese competitors will fare any better. Blue Sail already lost money in Q32021. But Intco Medical could be a much stronger competitor and it has also expanded enormously. Let's keep an eye on its margin for Q42021.

All Chinese exporters now face a resumption of 7.5% extra duty for their exports into US. However the Chinese producers may be willing to take more pains. Besides, unlike Malaysia glove makers like Harta and Top Glove, where their dividend policies were to distribute 60% and 50% earnings (in fact TG gives out 70% during this period), Intco ploughed back their supernormal profits to expand capacities with latest technology. In that respect, Intco is much smarter than Top Glove, which after handing out 70% profit and another RM1.4 billion to buy back shares at high price, now tried the opposite wanting to issue new shares in HK at a fraction of previous share price!

In the long run, the super normal profit from the pandemic could be a curse to existing Malaysian players. While all big players made enormous profits and are now cash rich, all their major competitors are also cash rich. All could afford a long price war for a long time. So cash rich may not be a good thing. When valuing these stocks their cash holding should be discounted. Let's also hope there is a collective wisdom among all these industry players.

After another wrong prediction, here comes yet another story. If the non existent "masterminds" don't want to show themselves, why did they order all their proxies to attend in the first place?

For you to count their numbers?

:)

Besides the concern about asset quality and exposure to property sector, Chinese life insurers have been undergoing a painful process of streamlining their agents. The industry has cut the number of agents from over 9 million to current 4 million.

During the boom time, insurers enjoyed new policies bought by new agents, and their families and close friends who support them. But the quality was poor. Now the cycle has gone into reverse.

The situation is probably not very different from Malaysia. In the past many bought insurance to "support" good friends or relatives.

I recall ALIM drastically cut its agency size a few years ago.

Is this a typical cycle for insurers, from unchecked growth and cut them down later?

Foreign investors love India. Sensex was below 3,000 in 1998 after Asian Financial Crisis. By 2008, just before the GFC, it breached 20k. Later from a low of 9k in 2009 it went over 60k late last year. Current PE ratio is 30 times.

While the Indian state owned insurer may be sold at 4 times Imbedded Value, the other state owned insurer China Life's price to EV is less than 0.3 time (EV per share HKD48.7, share price HKD13.9)

Chinese insurers' net worth may be doubtful. But are the Indian insurer so much better?

Cash kept in the company is not only subject to management fee, but the interest is also subject to government tax.

Current FD rate is around 2%.

0.75% of "fund management fee" is paid to CDAM. Another 0.75% "investment advisory fees" is paid to CDSB.

After further deducting the government tax on the FD interest, fund holders are left with practically zero.

Assuming inflation rate is 3%, the real return on the cash portion is actually negative 3%!

And for many years close to half of the fund asset is parked in fixed deposit, waiting for a stock market crash!

Bonus issue often causes market excitement and short term price appreciation.

Shareholders will ask management for bonus issue during AGMs. Except selected blue chip companies such as Nestle, most companies who meet the conditions will comply with shareholders' request by citing reasons like "enhancing the trading liquidity and marketability of shares"; "shares made more affordable in order to appeal to a wider group of shareholders and investors"...

In a bonus issue almost everybody is happy - the shareholders, management and the i banks who earn fees from the exercises. This is despite everyone also knows it's about slicing the same cake into more pieces. And some costs would be incurred.

I wonder if Lii Hen shareholders in this forum support bonus issue?

If you do, does it also mean you look forward to opportunities to dispose at least some shares in the short term during the anticipated price run-up?

Because if you don't dispose, after the excitement is over the share price is likely to return to a level dictated by its fundamental and prevailing market conditions. A good recent example is Lii Hen's peer Homeritz which had a bonus issue exercise in late 2020.

But assuming current dampened market sentiment remains unchanged, and therefore market response is not overly enthusiastic, with share price just going up 10% to about RM3, will you sell?

I don't have a fixed view on bonus issue. I just would like to hear other shareholders' preferences.

@wsb_investor, it's the estimate from TA Securities.

https://www.thestar.com.my/business/business-news/2022/01/14/ta-securities-retains-overweight-on-insurance-sector

Anyone who still find the story believable may also enjoy this other story

https://www.amazon.com/LBJ-Mastermind-Assassination-Phillip-Nelson/dp/1620876108

A story to give the impression that a national conspiracy is going on.

A conspiracy that involves Bursa, KPMG, EY, EPF, KWAP, PNB and many more.

A conspiracy to wrest control of Serba Dinamik, a company that was worth just a few billions even before the current saga.

A company that is probably in negative equity by now, after defaulting on a mere USD6.5 million debt interest payment.

A national conspiracy to wrest control of a company that probably does not even have enough to repay its creditors?

"The floods that hit the country recently resulted in losses amounting to between RM5.3 billion and RM6.5 billion, said economic affairs minister Mustapa Mohamed.

He said losses to property amounted to between RM1.2 billion and RM1.4 billion, followed by damage to vehicles, estimated at RM1 billion to RM1.3 billion.

Mustapa said the manufacturing sector suffered losses of between RM800 million and RM1 billion, and the agriculture sector between RM40.9 million and RM 49.9 million.

Meanwhile, losses to public assets and infrastructure amounted to RM2 billion, and those suffered by business premises were estimated at RM500 million to RM600 million."

https://www.freemalaysiatoday.com/category/nation/2022/01/17/up-to-rm6-5bil-losses-due-to-floods-says-mustapa/

Recall earlier PIAM estimated the industry's exposure at RM2b to RM3b. Recently an analyst put Allianz's gross and net exposure at RM300m and RM50m respectively. Not sure about the basis of the estimate, but judging from the minister's figures on vehicle damage alone and Allianz's market share, the gross exposure may be lower.

Sardin, thank you for sharing the Q&A.

The document link can be found here
http://www.hli.com.my/gm_current.php

I attended the AGM. There were many questions asked and answered during the AGM that couldn't be found in the published minutes or Q&A documents!

I've noted a few. For example, there were questions about the number of shifts for the Malaysian motorbike plants (mostly 2 shifts), utilization (80% of current capacity), downtime due to parts shortages (affecting overall production 10% to 15%). There was also a question about frequent changes of senior management in the past few years (they replied it's fine).

The person preparing the minutes is too lazy! It deprives important info from shareholders who couldn't attend the AGM.

He only did the bare minimum to comply with the listing requirement which dictates that listed companies must produce a "Summary of Key Matters Discussed" after their AGMs. Companies much smaller in size than Hong Leong Industries have done better!

I hope someone in the company senior management or the board will read this message.

If you can't do somethings like spending an extra 30 minutes to produce a more complete minutes, how could we shareholders expect you to protect our more important interests?

Based on valuation methods like dividend yield or dividend discount model, it should enjoy a premium.

However the trading volume is thin. Any fund will take a long time to acquire or dispose a meaningful position. And the market price will move against it during the acquisition/ disposal. From that perspective it should suffer a discount for being illiquid.

The net result is market price fluctuates between a small premium to a small discount, reflecting the relative strengths of these two forces.

But for individual investors who have strong conviction and plan to hold forever (ok some exaggeration here), holding preference share makes sense.

Of course his brain isn't wrong. He's a smart guy.

500 comments ago, when he just started commenting on SD, he took a different position.
https://klse.i3investor.com/servlets/cube/post/pearlwhite.jsp?fp=27

Something changed along the way.

Your long essay is misleading.

By comparing an apple to an orange, and showing they are not the same, you then went on to invent the story of "battle of the nominees"!

Of course an apple is not the same as an orange! Full stop. No further conspiration theory is necessary.

(1)
The "apple" here is the Top 10 Investors (as of latest filing). Note the keyword "as of latest filing".

https://www.bursamarketplace.com/mkt/themarket/stock/SERB/ownership

According to this list, Employees Provident Fund Board or EPF owned 4.97% as of 25-Jun-2021. That is correct. After 25-Jun, there was no more update from EPF,

When EPF's holding dropped below 5%, EPF ceased to become a substantial shareholder. Therefore EPF did not need to disclose further shareholding changes. EPF could have disposed its entire holding without the need for further disclosure. The Top 10 list only records EPF's position during EPF's last announcement, at the moment when EPF's holding crossed the line to below 5% as of 25-Jun.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3171359

Same applies to Kumpulan Wang Persaraan (Diperbadankan) or KWAP. KWAP'd holding dropped below 5% after 1-Jun-2021. At that point KWAP ceased to be a substantial shareholder. No more disclosure was required. The Top 10 list only records KWAP's last position when shareholding dropped below 5%.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3163704

(2)
The "orange" you used for comparison is the list of Top 30 shareholders published in Serba Dinamik 2021 Annual Report. This was the snapshot of top 30 shareholders as of 2-Dec-2021.

You don't find EPF and KWAP anymore.

The reason is simple. EPF and KWAP have sold most if not all of their remaining shares such that they were no longer in the Top 30 list by 2-Dec.

We don't need a "nominee battle" conspiracy theory to explain the difference between an apple and an orange.

During the past 5 years dividends were announced in January.

https://www.bursamalaysia.com/market_information/announcements/company_announcement?keyword=&cat=EA%2CENCO&sub_type=&company=1163&mkt=&alph=&sec=&subsec=&dt_ht=&dt_lt=

I concur with @dumbMoney. Sam, KGB and Kobay are beneficiaries of fund rotation into the tech sector.

Any investor who has bought into the sub-sectors of ATE (Vitrox, Penta, Greatech, MI..), OSAT (Inari, MPI, Unisem..) or precision engineering/ semicond support (UWC, Frontken...) two years ago will also enjoy enormous capital appreciation.

The test for ICAP fund manager is how to deal with the current situation. Will he sell if he believes the current price has far exceeded intrinsic value?

If he doesn't sell, does it mean current price is still within fair value range? That will imply the stocks were sold at great discount just not very long ago. But if they were such a good bargain then, why didn't he invest more instead of holding so much cash?!!

The common obstacle to rapid renewable energy adoption is intermittency problems, which can only be mitigated with advances in energy storage and continent size smart grid that even out fluctuations in power generation.

However Malaysia has the unique advantage (or problem) with too much power generation capacity due to poor planning in the past. Power reserve margin is in the range of 35% to 40%.

https://www.thestar.com.my/business/business-news/2020/07/15/power-reserve-margin-to-rise-above-40

Some say the optimum reserve margin should be 15%

https://www.malaysiakini.com/letters/564186

The problem is too many coal fired power plants have been commissioned. The last one came online just about a year ago. In order not to prematurely scrap the investment, coal fired power plants will only start phasing out in 2030s and the last one in 2044.

But demand for power is no longer fast growing even after the pandemic. As economy becomes more advanced the energy intensity per unit of GDP declines.

All new power plants will be in the renewable space, and they continue adding to the already abundant spare capacity. There isn't much room for gas plants. Not until coal plants get phasing out.

It's expected that the industry lobby wants gas to play a greater role.

But according to the government plan, the share of gas in power generation capacity will fall from 45% in 2021 to 36% in 2029, before picking up from 2030 onwards. Refer page 12.

https://www.st.gov.my/en/contents/files/download/169/Report_on_Peninsular_Malaysia_Generation_Development_Plan_2020_(2021-2039)-FINAL.pdf

Investors must have patience.

Good input. Can we expect the company to make provision in next quarterly report? Based on the amount we can perhaps get a glimpse of Allianz General's risk tolerance, on how much they are willing to cede to reinsurers to protect downside (besides the info on 15% gross premium).

"General insurance industry facing up to RM3 billion in flood-related claims, says PIAM"

https://www.theedgemarkets.com/article/general-insurance-industry-facing-rm3-billion-floodrelated-claims-says-piam

Let's do a back of the envelope calculation on Allianz General's exposure.

(1) PIAM estimated RM2 billion to RM3 billion exposure. Let's take the average RM2.5 billion.

(2) Allianz General has about 13% of market share. For simplicity, let's assume uniform exposure across different insurance types like motor, fire... Allianz General's exposure will be RM2.5 billion * 13% = RM325 million.

(3) During FY2020, gross premium of Allianz General is RM2,356 million. Premium ceded to reinsurers was RM363 million, or about 15% of gross premium.

(4) I'm not familiar with how reinsurance works. In the case of recent flood, does reinsurance pays out when a certain claim threshold is reached? Not knowing how it works, I will make the assumption that Allianz General and reinsurers will shoulder the claims on 50-50 basis. Allianz is expected to shoulder RM325 million *0.5 = RM163 million.

(5) The PBT for Allianz General in FY2020 was RM432 million. Assuming it remains the same, an extra 163 million payout represents 38% reduction in PBT.

Any thought?

I come across this advertisement by Allianz General. There is a section talking about its stance on online sales.

*****

This coming year, Wang says Allianz General will continue to use Covid-19 as a backdrop to design its products and listen very carefully to the voices on the ground to ensure it produces the right kind of solutions. The one thing it won’t do, he says, is sell them directly to customers online.

While it has over 40 digital partners, the insurer still prefers a hybrid business model that sees its agents personally dealing with customers. That might sound unusual in a time where businesses are increasingly digitalising their products and services.

Wang explains that this is because he is not convinced that the company can be as effective at delivering its services via an online portal.

“You can get a quote and key in some details; it’s just that the last mile of buying, you can’t buy. I want to route you to our intermediaries so that they can provide you with the service. As a responsible insurance company, we don’t want to get a whole bunch of customers that I don’t even know how to service — that’s not our business model,” he stresses

*****

Despite what the new CEO has said about online sales, I suspect the main reason is the company does not want to alienate its agents.

Does it mean other players selling direct to customers can eventually eat into its market share through the offering of more competitive products?

I attended the EGM this morning on the subject of Hong Kong listing.

From the Q&A, it’s clear that the management has not come to term with its earlier folly. Driven by its dream to become Fortune 500, TG had earlier spent over a billion on share buyback at 7 to 8. But it still dreams of listing in Hong Kong such that it is willing to sell new shares at 2 to 3. This is the classic example of buy high sell low.

Questioned by a shareholder, the management gave the excuse of the need to balance shareholders looking for dividend (hence the special dividends earlier) and shareholders looking for growth (hence the need to raise money now by selling shares in Hong Kong at a low price).

The truth is management probably got carried away by the record profit last year. It wrongly assumed that the party could last a lot longer. Institution funds who piled in to glove stocks in 2020 should thank TG for the billion ringgit share buyback. Courtesy of TG and all its long term shareholders, the share price was sustained long enough to give these funds enough time to cash out their huge position.

After its first folly of buying high, the TG management is now about to commit the second mistake by seeking Hong Kong listing at all cost. The allure of Hong Kong Stock Exchange is probably too great to resist. But a company does not become great just by getting listed in New York, London or Hong Kong. It’s just like any aspiring young artists don’t become famous just by moving to Hollywood. I predict if the listing is successful, the liquidity and valuation will stay low and disappointing, as many companies have already found out.

The contrast of TG with Harta management could not have been greater. Beware of management who are overly concerned about share price and “status” instead of laser focus on the business. With hindsight I made the right decision to sell most of my long term TG holding last year despite missing the peak. Now I’m content just to keep whatever little I have to keep a tab on what is going on. No intention to add this glove stock yet despite apparent low price.

@Papayashot, I only have a basic understanding that Core PBT = PBT - fair value effects - tax impact. The result is presented this way in page 7 and 8 of analyst briefing slides.

Not sure about the detailed calculation.

@wsb_investor, thank you for the explanation.

Based on what you've said, IFRS17 should have been implemented long ago. It will save everyone from major misunderstanding. For example Affin assigned a RM8.4 TP to STMB in late 2019 based on 4.75X book value. Now it's RM3.8. Despite the pandemic the impact to insurance sector isn't that great. May be this can explain the constant share disposal by STMB insiders!

@wsb_investor, it seems that paying too much attention to life insurance quarterly core PBT could be a distraction. Not to mention PBT that incorporates fluctuation in investment gain/ loss.

Would you agree with this view?

My reasoning is this. On the revenue side, other than single premium products (account for only 17% of GWP in 9M21), other policies have been written years before. Their quarterly revenue contribution should be predictable right? For example, ALIM quarterly gross earned premium for the last 4 quarters are within the range of RM753m to RM826m, a variation of less than 10%.

I suppose on the cost side they are exposed to the rise and fall of claims, management expenses etc. Core PBT in the last 4 quarters vary between RM43m and RM69m. However the quarterly cost are rather stable in the low RM700 million range. The seemingly larger swing in core PBT is due to the relatively thin (<10%) PBT margin.

When you look at the life insurance core PBT, what are the factors you will look at to gauge the performance?

@Papayashot, I’m not too concerned about fair value changes due to large swing in bond yield. Looking at historical record, drastic changes in bond yield is not a regular phenomenon (hopefully not!)

https://www.marketwatch.com/investing/bond/ambmkmy-10y/charts?countrycode=bx&mod=mw_quote_tab

Besides, I think it was explained here before that interest rate changes also have an offsetting effect on liability. Just that I don’t know how to pin point the change in the liability side. Can anyone elaborate on that?

I like to think NBV as addition of future profits to the "profit reservoir". So it's important.

Of course these future profits are calculated by actuarists based on methodology and their assumptions. Not sure if BNM dictates the parameters in NBV computation. But Allianz being a subsidiary of Allianz SE it believe has to follow its parent’s way, and somehow comply to a “global standard”?

Just wonder historically how often that insurance firms find their calculations made by actuarists in an earlier age turn out to be very different at a later age. Any such example @wsb_investor?

I also want to understand the significance of investment holding segment.

Meanwhile a few notes and questions on the life insurance segment.

Market share in 3M21, 6M21 and 9M21 has grown from 8.8%, 9.0% to 9.2%

ANP increased by 32.0%. Investment-linked ANP increased by 42.2% --> Are investment-linked products more profitable? Does it mean more profitable products are growing faster?

Quarterly NBV (RM million):
1Q20 50.1
2Q20 35.0
3Q20 80.8
4Q40 73.1
1Q21 82.6
2Q21 63.9
3Q21 66.0

Can we say the NBV result is good considering it has grown QoQ despite 3Q21 was a lockdown quarter?

Besides 9M21 NBV at RM212.5 million versus 9M20 at RM 165.9 million means a 28% YoY growth. If the post lockdown 4Q21 can deliver stronger growth, may be we can see 2021 NBV touching RM300 million?

If apply the Allianz Ayudhya example shared by wsb_investor earlier, at 10X multiplier that will contribute ~RM3 billion market cap versus current MC at ~RM4.5 billion (inclusive of ICPS)

Among the analyst reports I manage to get hold, only Affin and RHB mention MFRS17. They are also more conservative with their TPs.

Affin expects a contractual service margin impact of 30% (what does it mean to book value, profit etc?)

RHB expects 15% to 20% drop in FY23 earnings, and 25% to 30% drop in shareholder equity. As pointed out by @wsb_investor, many analysts use PB or even PE valuation. All else being equal, a 30% drop in equity should mean a 30% reduction in intrinsic value. Say previously the value is RM5, the new value should be RM3.5.

However as earning decline is more gradual, ROE = earning/ shareholder equity will increase by around 13% if apply RHB figures. So all else being equal, a higher PB value is warranted?

The biggest problem is they never explain how they derive their estimate. This is like a guessing game.

In future civil servants can "purchase motor vehicle takaful coverage together with road tax renewal by way of an interest free Shariah compliant Qard loan facility that enables instalment payments via a salary deduction plan of up to 10 months"

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3211796

A logical extension of MYEG online road tax renewal. What is the implication for motor insurance market? Besides Allianz does not have Takaful license.

@dumpMoney, thank you for the useful reference!

@Investmon, thank you for the good input. I agree the bracket in the name implies restriction. However, at the same time I also don’t see it as a petty revenge for reasons mentioned earlier. The date of CCM's approval shows that Scientex anyway want to change the name after privatization.

I also agree with you that Daibochi does not have the balance sheet to acquire Scientex’s packaging business. I cited other methods just to illustrate that the best route for Scientex still lies in privatization.

The hurdle in the remaining 28% shares may not be that high if it's a strategic move. Of course, I have no way of knowing what is the price the other three funds have sought. But in the meantime, it’s in everyone’s interest to make sure Daibochi continue to prosper. The privatization could be put aside and revisited later.

This is where I hope the Daibochi board could be candid in the upcoming AGM. If they are willing to explain in details about the company plan, and to assure minorities that they work for the interest of all shareholders, it will help restore the trust. A virtual AGM, while not ideal, is not a hindrance to sincere communication too.

But on the other hand, if they just assume they could bulldoze all proposals through with Scientex votes, they may find resistance on resolutions where Scientex could not vote.

There has been precedence. In 2019 after acquiring 77% of Malayan Cement from Lafarge, YTL Cement was too arrogant to assume Related Party Transactions resolution would be duly passed. The RPT was voted down. After the incident the board had to explain to institution minorities and arranged another vote a few months later.

https://www.theedgemarkets.com/article/minority-shareholders-block-lafarges-rm35b-rpt-ytl-cement

Anyway it’s our rights and also duties as shareholders to raise relevant questions. Let’s look forward to the Daibochi Board being professional and responsible enough to provide the necessary clarity and assurance.

I don’t think the change of name is an emotional move. There are several clues that lend support to my reasoning.

First, we need to give credit to PJ Lim for growing Scientex into a great enterprise over the years. Successful entrepreneurs like him is unlikely to be distracted by petty revenges. Besides he should know his offer price is rather opportunistic. So couldn’t blame others for rebuffing his offer.

Second, shareholders with sentimental attachment to the Daibochi’s name are likely to be the descendants of the founders. They have already exited in 2018 by selling their stakes to Scientex. It’s hard to imagine Apollo, Samarang or Public Mutual being sentimental to the Daibochi name despite being long term shareholders. So if this is indeed a petty revenge it’s not hitting the right target!

Third clue lies in the date. As mentioned earlier the Scientex Packaging name has been approved by Companies Commission on Oct 29, while the takeover offer was still ongoing. The name change is probably planned well before the offer has been announced.

Forth, @Investmon you’ve just provided another clue by citing Great Wall. Scientex’s Great Wall subsidiaries are called Scientex Great Wall and Scientex Great Wall (Ipoh). By the same convention, Scientex should have renamed Daibochi as Scientex Daibochi.

By calling it Scientex Packaging it hints at a more central role. It implies Daibochi will become the vehicle for Scientex packaging business. But currently Daibochi is the smaller part of the entire packaging business. Such a prominent name seems inappropriate. Unless, of course, this is the precursor to more corporate activities in the future.

Fifth, although Scientex is famous in the packaging business, the name is associated with the upstream business as a prominent stretch film supplier. Daibochi is well known in the downstream converter business due to its long established portfolio of MNC clients. So the Daibochi name has intangible value that a valuation expert could actually put a figure on. There must be a compelling case based on a greater gain to justify writing off this intangible asset.

This is where we need to hear the full story from Daibochi Board. They should explain to all shareholders what is the game plan with all these moves, including the change in dividend policy. They need to come clean on their earlier endorsement of TA low valuation that assumes just 2% growth after 2026. It contradicts the new dividend policy which indicates desire to retain more earnings for investment, which in turn implies the Board seeing opportunities that can generate return above shareholders’ cost of equity.

If indeed the name Scientex Packaging hints at part of Scientex entities may come under Daibochi in the future, we need to know how Daibochi is capable to fund itself to acquire this larger beast.

Despite being a cash cow, Daibochi does not generate that magnitude of cash to take over Scientex multiple packaging entities. Purchase assets from Scientex in exchange of issuing new shares is a no no, as minority shareholders will veto. Funding through borrowing is risky as Daibochi becomes a highly geared. Or more straight forward, Scientex to acquire the remaining 28% shares in another offer in 2022, so that it can do whatever it wants with its entire packaging portfolio?

Those of you who have not sold your shares, let’s attend the AGMs and pose these questions. Although Daibochi directors are not in the position to explain on behalf of Scientex, hopefully from the way they answer we get a hint what could be coming.

@dumbMoney, thanks for pointing out the 10% limit on share buyback per year. I've overlooked.

Let me try to understand the dividend distribution calculation.

As of last quarter end the cash balance is RM210.76 million or about RM1.51 sen per share. Assume the cash value remains unchanged. Also further assume the scenario where dividend distribution is the full RM1.51 cash instead of just 20 sen. Then the NAV will be reduced from RM3.76 - RM1.51 = RM2.25.

When shareholders receive the RM1.51 cash, it will be at full value.

To do better than the RM2.45 market price today, the ex-dividend share price should be equal or higher than RM2.45 - RM1.51 (cash received as dividend) = RM0.94.

When if market price is reaches RM0.94, the NAV discount will be as wide as 1 - 0.94/ 2.25 = 58%.

Given current NAV discount is "only" 30+%, I suppose the discount will not go as deep as 58%? As long as the ex-dividend discount is less than 58%, in my thinking it will be represents an improvement over today situation.

Another way to look at the current NAV discount of 30+% is this. Today the market may impose a steeper discount on the share investment portion of NAV. But it also imposes a discount on the cash portion of NAV -- may be lesser discount, but there is still a discount nonetheless.

The cash portion of the discount can be completely eliminated if the cash is given back to shareholders. In that sense the overall discount will reduce through dividend distribution.

Just my way of looking at the situation. But I agree share buyback can be an efficient way to reduce discount because management can target the purchase price that helps to close the gap.

I'm appalled and at the same time amazed by the ingenuity of this answer!

It has subverted the meaning of share buyback.

In a transaction where investor A buys 100 shares from investor B, it also means investor B simultaneously sells 100 shares to investor A. Where is the "back" in the share buyBACK? Back to whom? There is no "back" here.

There is no change in the total number of shares in the market. Still 140 million shares.

Share buyBACK only happens when the company itself buys shares from investors, and BACK into the company as treasury shares.

The difference when iCAP buyBACK shares is the market supply of iCAP shares will dwindle. Fom 140 million to 139 million, 138 million, 137 million...

As the supply of shares reduces, the remaining shares in the market become scarce and therefore more valuable. The NAV discount will narrow accordingly.

Too complicated? Let's try another way.

CoL is only willing to pay for your iCap share at 30% discount to NAV. Since no buyer is more generous than CoL, the iCap share can only be sold at 30% discount at best.

But if iCap company itself is willing, stuffed with more than RM200 million cash, it can put in a buy order for 50 million shares of iCap at RM3.65. In other words, buy at zero NAV discount! The discount is eliminated immediately.

Still too complicated? Then don't buyback. Just return the RM200 plus million cash to all shareholders as special dividends.

Still too complicated? OK, how about manager just waives the fees on the RM200 plus million of cash sitting in the bank account? Show some mercy on the shareholders.

Unfortunately I don't think this is an issue of comprehension. Common sense has been subverted on purpose.

It reminds me of the tale of a smooth talking consultant. Whenever he fails to con he will try to confuse his way out.

For every successful new economy company like SEA Limited, I can quote at least two other mult-business old economy companies that are not doing well or have broken up. Latest examples include General Electric, once the most successful company in the world, which has just announced a three-way breakup. So is Johnson & Johnson which will be split into two. More prominent examples closer to home include Sime Darby which has spinned off its property and plantation arms.

No one in the forum have doubted the past success of Scientex’s property cum packaging business. But whether it represents a good personal investment instead of flexibly investing into pure plays at respective sectors is debatable.

No one has also said that Scientex will not do well due to “lack of focus”. But any shrewd entrepreneur, which I believe Scientex’s PJ Lim is one, will want to develop and retain the OPTION of spinning off a minority stake of a CONSOLIDATED packaging business.

When the timing is right, why not list a 25% of the consolidated, vertically integrated packaging business at a premium to raise cash for the property arm? In fact every management who is responsible to their shareholders should develop such strategic option, only to be called upon when time is right.

This is where I find the disconnect of certain views in the this forum. They downplay the prospect and value of Daibochi. They praise the brilliance of Scientex management. But they sidestep the inconvenient contradiction on why a brilliant Scientex management may want to acquire 100% of Daibochi which supposedly is worth a lot less. Why never give credit to Scientex management for their strategic move when the credit is due?

It’s funny that people who have purportedly accepted Scientex offer continue to show concern for the remaining minority shareholders, albeit from the sideline. When Apollo, Samarang and Public Mutual which collectively own more than 22% of Daibochi shares are not worried about the reduced free float, I as a small potato long term shareholder is definitely not worried.

Unless the reminder is targeted at those funds. In that case this forum is probably the wrong channel. Better talk to the fund managers directly.