According to Annual Report, Wessex Water RAB value at year end was £4.1 billion (RM24.4 billion).
However, we need to take debt into account, as the assets are funded by both debt and equity.
For example, Hong Leong assumes 1.2 times Enterprise Value/ RAB, and puts the equity value after debt at RM11.5b (yes, it's still a large sum versus YTL Power market cap of RM18.6b). But whether it's 1.0, 1.2 or 1.4 times are also subjective, depending on historical transactions and current market conditions.
Lastly, we also have to consider that a high EV/ RAB value can only be realized during disposal. We can't directly unlock the value. Therefore such assets are usually traded at a discount, though the level of discount is again debatable.

@dragon328, thank you for your always useful explanations!

For telecommunication, he expected regulated return of 9%, but did not elaborate. I don't understand that. Unlike Wessex Water or Tenaga, there is no regulated return for YES. What does the 9% mean?
He said second 5G network would not impact YES since government has promised both DNB and the second network will offer the same wholesale prices. Really? If there is no differentiation, why would Maxis push hard for the second network?

MSWG asked about sustainability of Power Seraya's strong earnings. The company is confident about short term prospect, but beyond that it depends on market condictions which they can't control.
I didn't hear very clearly about his response to shareholders' questions on whether they expect earnings to revert to norm based on latest contracts.
Can anyone who attend share his response?

In this morning AGM, Dato' Yeoh explained how Wessex Water RAB value increases proportionally with the inflation rate. If annual inflation is 10%, RAB value for next year increases by 10%. As the future tariff is calculated based on the RAB, the business is essentially protected from inflation.

The market is not just looking at last quarter earning or current dividend yield. It is also responding to some negative developments. Among others:

1. Loan loss coverage (LLC) has declined from 109% (1Q23), to 83% (2Q23), to the latest 75% (3Q23), lower than pre-pandemic level
2. Management has guided higher cost income ratio at 47%-47.5%, from 44.6% previously
3. Management has guided lower ROE at 10%, from 11% previously.

Long term investors should focus on corporate governance (checked), company fundamentals (checked), industry outlook (not so sure), valuation (not so sure) rather than other institutions' trading decisions. These institutions have their own reasons for buying & selling, which doesn't necessarily mean the current share price is under/ over-valued.
In fact, compare to other plantation stocks, UP share price is a lot less volatile. If you think the valuation is right, buying at RM16.5 or RM17.1 is just a difference of over a few percent, which is immaterial over a multi-year horizon.
No doubt the current dividend yield is high, and I expect it to remain high in the near future. But an important consideration is, as ooihk899 mentioned, this is a cyclical stock. A more prudent, but also more difficult approach, is to estimate the future revenue and margin over a full cycle and then work out the valuation.

Thanks for explaining. It's not easy to estimate future growth based on quarter to quarter CSM number. Is NBV still the best indicator of growth?

Yeah, rightfully life insurance valuation = Embedded Value + VNB * multiplier
In practice, some life insurers are valued at below 1X EV.
For Allianz Malaysia, both RHB and Maybank value it at 1X PE, but no premium is given, i.e. VNB multiplier is zero.

Thanks for pointing out. I actually missed slide #7 while trying to find answer in the quarterly report!
Note 1 explains RM69m increase in CSM due to "non-financial assumptions update".
However, note 2 also mentions "higher CSM release due to non-financial assumption update", which is -RM321.4m
Does it mean the assumption changes somehow cancel out one another?

In the same slide #7, "expected growth" contributes RM163.8m.
What is "expected growth"? Does it refer to the expected return from investments, say 7% yield from equity portfolio?
Or does it refer to the extra return expected from investments, example by revising assumed future return from 7% to 8%?
If it's the former, the contribution will be recurring. But if it's the latter, the increase is only a one-time contribution that could be reversed in the future.

Another very good quarter.
It's especially good to see that growth is picking up at Allianz Life. ANP grew at 18.5% outpacing the industry. Now market share has exceeded 10%.
For the first time, the company has also provided agent recruitment info (slide 22). The CEO Program was also mentioned in the Annual Report.

Slide 3 shows 9M CSM grows at an impressive 11.5%, but NBV only grows at 3.1%. I wonder why is CSM growing much faster than NBV, given NBV is an important contributor to CSM.
I worked out the quarterly increases. 3Q CSM increases by 3,156m - 2,993m = RM163m. 3Q NBV increases by 236m - 147m = RM89m. The difference is about RM74m.
Does CSM increase faster mainly because no dividend has been paid in Q3 this year? (Allianz Group paid RM323m of dividends in FY22, contributed by both life and GI)
Or most likely due to some assumption changes?
I wonder, over the next few years, could Allianz life business grows at a high single digit. That could support a higher valuation.

MARGMA's prediction in Aug 2022:
Margma president Dr Supramaniam Shanmugam said industry players are navigating through a challenging time dealing with multiple dynamics with global risks including the prolonged Russia-Ukraine war.
“The association is, nevertheless, confident the industry will see a demand growth of 10% to 12% in 2022,” he said.
“As a consequence of increased global healthcare awareness and enhanced regulatory requirements, such demand will grow by 12% to 15% in 2023,” he said.
The global demand for gloves is estimated at 399 billion in 2022, and Malaysia is estimated to produce 240 billion gloves in 2022, according to Margma’s report.
https://www.freemalaysiatoday.com/category/business/local-business/2022/08/03/malaysia-likely-to-export-rm23-bil-worth-of-rubber-gloves-this-year/

MARGMA's prediction in Mar 2022:
Malaysia is set to retain its position as the world’s number one rubber glove-producing nation in 2022 with export volume likely to expand by between 12 and 15 per cent, according to the Malaysian Rubber Glove Manufacturers Association (MARGMA).
It anticipated global demand for rubber gloves for the year to be at 452 billion units, or 14,333 gloves used every second.
https://www.mida.gov.my/mida-news/malaysias-rubber-glove-exports-projected-to-grow-12-15-pct-in-2022/

MARGMA's prediction in May 2021:
Even with global production expected to ramp up to 420 billion this year from 380 billion last year and annual growth of 10-15%, Supramaniam said excess demand could run into 2023. Malaysia expects to supply 280 billion, or 67%, of that increased global supply.
https://www.reuters.com/article/us-malaysia-gloves-idUSKBN2B709W/

MARGMA president Dr Supramaniam Shanmugam is just an industry cheerleader. You can check the accuracy of his past predictions.

From FY18 (Apr 2017) to 2QFY24, RCE eps on adjusted basis has grown at a compound annual growth rate of 9.4%.
During the same period, dividend has grown at CAGR of 32%! This is achieved as payout ratio increases from 27% in FY2018 to 76% in the last 4 quarters. Last year there was also a special dividend.

In short, the impressive dividend has increased on the back of strong earning growth, compounded by trippling in payout ratio. Moving forward, however, payout ratio is likely to plateau as it's already at 76%.

As for earning growth, there are two sources:
1) Percentage of Non-interest income (NII) as total operating income has increased from a low point of 16% to 33% now, helped by higher interest earned and customer refinancing. In other words, NII has increased a very fast pace in the last few years. It has to slow at some point. But I haven't seen it slowing.
2) The last four quarters have seen financing receivables growing at 6% to 8%, much higher than the 2% to 3% growth in FY21 to FY22. This is the fundamental source of growth. The growth rate is higher than banking sector, exceeding the management promise.

On asset quality. Over the last 3 quarters, GIL ratio stays below 4%. Credit cost on last 4Q basis remains at acceptable 133 basis points. So far so good.

I will continue to hold and keep an eye on performance. But I won't buy.

@DividendGuy67, you touched on Heineken and Carlsberg. Instead of discussing here, I PM you. Refer to the little blue icon MQ Chat at the top right of your PC screen. Feel free to share your insight there or at HEIM or Carlsberg forums.

Dividend yield = dividend/ price.
The nominator "dividend" is based on historical dividend. The amount remains fixed until the next dividend is declared.

However, the denominator "price" is forward looking. Price declines in anticipation of future profit/ dividend decline.
As future prospect dims, and share price declines, while dividend remains constant for the time being, the dividend yield appears to go higher. Dividend yield stays high until the next round of dividend cut.

Next the price declines further, and dividend yield appears high again. The process repeats.
It's a downward spiral. But the dividend yield appears high throughout the decline.

Like it or not, this is the situation with BAT for the last 7 to 8 years. But not for Heineken or Carlsberg. At least not yet.

Note that I don't have any interest in BAT, be it short or long. I'm attracted here by the comments of DividendGuy67.

@dumbMoney, your analysis on Insas owner's possible intention and defense strategy is very good. It's a lot clearer to me now. Thumbs up.

I stay away from iCAP share. Not even 1 share.
But I regularly visit this iCAP forum to check out the good discussions contributed by knowlegable people like @dumbMoney. Thank you for the good inputs.
I'm also not surprised that whenever AGM time is near, not only aggrieved shareholders, but some of their detractors also appear here.
@FastMoney, I also read about your comment on the advanced knowledge of 55%. :)
Keep it up!

When good alternatives arrive, even T20 may desert Starbucks. Don't underestimate the power of value for money coffee chain. Mainland China offers a lesson.
As consumers turned cautious amidst economic uncertainty, the once disgraced homegrown Luckin Coffee has now dethroned Starbucks. It has >10k stores vs Starbucks' 6k in China. Its revenue grows at close to 100% vs Starbucks single digit. Nothing stays constant.

Digital bank asset: capped at RM3b
RHB asset: >RM300b
Maybank, about RM1 trillion
Another nonsense, as usual

If you buy RHB because of its dividends, you should be contented because RHB still maintains its dividend. You've achieved your objective.

But if you buy RHB because you expect its dividend yield will help attract more investors, thereby pushing up share price so that you may exit with a handsome capital gain, well, it has not worked out that way, not yet. Such an expectation means you depend on the market to come to your view. However currently the market doesn't just look at dividends, but also factors like growth, asset quality and others.

Under IFRS17, compare 1H23 to 1H22, there is still a substantial increase in net investment income (RM252m vs RM126m)

Setting aside fluctuating FV changes, impairment and so on, the main increase has come from investment income on financial assets not measured through profit or loss (RM231m vs RM184m. I wonder if it benefits from interest rate rise)

Most of STMB's investment is in relatively low risk fixed income instruments. As long as the interest rate and economic condition remain stable for next few quarters, the investment income will probably be above RM100m per quarter. This could offset the decline in insurance service results (which might also be temporary?)

I look up Allianz's notes. It explains that VFA (Variable Fee Approach) is a mandatory modification of the General Measurement Model regarding treatment of CSM, in order to accommodate direct participating contracts.

As I understand, Takaful concept is risk sharing. So by default should be participating, right? So should adopt VFA.

Are you saying that STMB's higher investment return (even after netting off profit expenses) may not fully belong to shareholders?
If that is the case, the financial statement will be quite misleading. The excess reported profit will have to be deducted in the future, but how?

"Classified" as shareholder fund, but not economically? Does it mean the fund is presented as shareholders owned, yet the benefits are not for shareholders?
If that is the case, the profit shown will be very misleading. Worse than IFRS4 time.

By the way what is GMM?

Yes, I also notice STMB has tweaked its Q1 number. It means its IFRS17 transition work is active into Q2. Is this common among other insurers/ takaful players? Is this an indication about competence?

You’re right that purely looking at insurance service, 1H22 insurance service results have dropped 25% after IFRS17 (RM137m vs RM184m)
I also noticed that, measured in IFRS17, insurance service has experienced decline. RM96m in 1H23 vs RM137m in 1H22. The result is only saved by investment return.

Looking at Note 28, most of the “other investment RM8,871m” consist of fixed assets. The corresponding 1H23 income of RM231m implies about 5% yield, which is reasonable. These incomes should be shared with policyholders’ funds.

Is the sharing represented by “Net profit expenses from takaful contracts issued”, which is RM102m?

In other words, shareholders got slightly more than half of the investment gain. Do you think this ratio is too high?

Good sharing. Based on my observation, this company is better suited for investors looking for dividend accumulation rather than capital appreciation. Sleepy stock like UP. But can sleep well with it.

Pinky, this is a regular dividend stock like your UP. What prompted you to sell then, and to buy now?

@wsb_investor, you mentioned STMB has higher CSM release rate (annualized 19% versus Allianz 12%), which supports its higher PBT.
Putting management choice aside, could it be STMB’s life policies have shorter average duration than Allianz’s?
Assume a constant scenario. If CSM is evenly released, it will be completely released in RM1,117m/ (RM109m*2) = 5.1 years.
By contrast, could Allianz’ policies have a longer average duration = 1/12% = 8.3 years?

If STMB keep growing its business, it can also replenish the CSM despite fast release. After all the Family Takaful industry has a higher growth rate than conventional life.

Note 24 also shows that amount of CSM recognized is growing. The half year release was RM116m versus RM109m a year ago (7% growth)

Compare first half 2023 to first half 2022:
Family Takaful revenue grows at 22% (RM601m vs RM492m)
General Takaful revenue grows at 25% (RM600m vs RM479m)
Group PBT grows at 24% (RM261m vs RM211m)

Several analysts have turned cautious towards RHB. They've cut FY23-25 earning forecasts by 9-10% (HLIB), by 10-11% (CIMB), by 5% to 7% (MIDF). As a result, their TPs have been cut back - RM6 from RM6.6 (HLIB), RM6.56 from RM7.62 (CIMB), RM6.66 from RM7.58 (MIDF)

The reasons cited by HLIB -- NIM compressed, loans growth lost traction, and GIL ratio nudged up. LLC has gone down to 83%.

CIMB mentioned RHB Bank missed (albeit marginally) all of its FY23F KPIs:
1. ROE of at least 11% (achieved 10.6%)
2. Loan growth of 4-5% (achieved 1.9% in 1H23)
3. CASA of 30% (achieved 27.6%)
4. GIL of 1.5% or lower (1.64% as at end-Jun 23)
5. Cost-to-income ratio of 44.6% or below (achieved 47.5%)

But CIMB did mention that a higher dividend payout (given its strong CET1 ratio of 17.1%) could be a re-rating catalyst.

I believe most analysts are not concerned about IFRS4 versus 17 profits. They have been guided by management that total life time profits remain unchanged.
Besides, most of their valuation method consists of P/B multiple of general insurance + EV multiple of life insurance. So their valuations are not driven by a single year profit.

The headline shows record quarterly revenue and profit.

However, look closer at the income statement. Group operating profit before allowances for 2Q was RM936m (declined 10.9% YoY from RM1,051m a year ago). On 6M basis, it was RM1,987m (declined 4.1% from RM2,073m a year ago)

The record profit was helped by two key factors.
1. Write back of management overlay on credit losses. 2Q writeback is RM132m, versus a charge of RM39m a year ago. On 6M basis, it was positive RM85m versus negative RM192m a year ago
2. The absence of prosperity tax. On 6M basis, tax and zakat was only RM496m (versus RM668m a year ago), or effective tax rate of 24% (versus 36% a year ago)

These two factors are one time.

Share price has reached/ soon to reach analyst TP - RM15.2 (Kenanga, buy), RM16.7 (Am, hold), RM16.7 (RHB, buy), RM16.75 (Maybank, buy).
If the coming result is good, analysts are likely to revise TP upward to keep their buy calls, which is minimum 10% above prevailing price.

Another good quarter. For the last 3 years, net interest income fluctuated at around RM43m - RM52m per quarter. It is RM46m in the latest quarter. The good result in recent quarter is contributed by rising non-interest income.

Impairment on financings has been coming down to RM4.7m (versus RM8.2m last quarter, and RM8.2m a year ago). Credit cost is 93 basis points. This is good. Hopefully this is a new trend after recording on average about 150 basis points per quarter throughout FY23.

Gross financing continues to grow modestly to RM2,045m (+1.2% QoQ, +7.4% YoY). This is in line with management's guidance to analysts earlier that the company financing growth will track the banking industry. It's better to grow conservatively through quality financing.

One bright spot with RCE is the Board is willing to return excess capital to shareholders. Not only through increased dividends, where payout ratio has increased from 30% a few years ago to current 60%, but also the 18 sen special dividends in late 2022.

As a result, the company has reversed the ROE decline seen earlier. Despite its growing business size, ROE has actually risen back to 17% - 18% range. This is rare and impressive act. Such attitude of taking care of shareholders is probably one reason that the market has re-rated its share.

A good sharing from YAPSS.
https://www.youtube.com/watch?v=HAv8IrcfPnA

Charlie Munger advised people who could afford the claim to self-insure rather than buying insurance policies.

But with one exception, which is medical insurance, where insurance companies have negotiated better deals with health care providers. While this is true in US, does it apply to Malaysia? I've heard private doctors recommending unnecessary procedures just because patients are covered by insurance.

Yeah, let's hope the volume can support too. EPF selling has either slowed down or stopped their selling.
If price continues to strengthen and the coming quarterly result is good, most likely analysts will revise TP upwards in order to keep their buy calls.

Out of these 3 stocks, I like Allianz the most. Allianz’s 5-year return is not as impressive as RCE, but it is still much better than HLIND. On unadjusted basis, its return was 21% (from RM12.50 to RM15.14). After dividends are included, it returned 54% (from RM9.81 to RM15.14). So, unlike HLIND, a 5-year investment in Allianz has at least earned the cost of capital for its shareholders!

More importantly, just like RCE Capital, Allianz has been returning excess cash to shareholders in increasing amount. Dividend per share has increased from 40 sen in 2018 to 85 sen in 2022, and is still increasing. So the market has taken notice recently. Share price has been moving upward in tandem.

Of course, there are many other good investment opportunities besides these three companies. I mention these three for illustration purpose – that good businesses and good management alone are no guarantee for good investment return. The Board has to be shareholders oriented, and is willing to share its fruits with the minorities!

Therefore until HLIND board shows sign by being more (minority) shareholders centric, I will continue to underweight HLIND and overweight Allianz.

On the other hand, RCE Capital was a pleasant surprise. For several years, the growth was rather weak at low single digit. RCE profit records are not superior to HLIND. But one big difference is RCE Board was willing to return excess capital to shareholders, thereby improving its capital efficiency as illustrated in its robust ROE.

After adjusting for the bonus share issue, annual dividend was increased from 3 sen in 2017, to 4 sen in 2018, 5 sen in 2019, 6 sen in 2020, 7 sen in 2021, and 9 sen in 2022. And there was another 18 sen special dividend in late 2022.

The market took notice of RCE’s good corporate governance. On a 5-year basis, share price grew 163% (from RM0.83 to RM2.22) on unadjusted basis. After factoring dividend, share price actually grew 296% (RM0.56 to RM2.22)!

I have reservation about HLIND’s cash hoarding right from the beginning. I also view HLIND as being less transparent versus the other two. For example, in its annual reports it would lump performances of different businesses together instead of providing breakdown. Unlike the other two, it also did not open to analysts through regular results updates.

Therefore it was not a surprise that HLIND share price remained range bound. In fact, on a 5-year basis (week 7-Aug-2018 to today), even after adding back dividends received, the total return was practically zero (RM8.98 to RM8.99). In fact, if dividends are excluded, the return would be -23% (RM11.70 to RM8.99)!

When I first commented on i3 a few years ago, I benefited from the insights of people like kywoo. Kywoo liked three companies – Hong Leong Industries, RCE Capital, and Allianz. It happened that I also liked them. Over the next two years we discussed the merits of these stocks on and off.

The three stocks had several similarities – strong business fundamentals, domestic markets, good management, mid/ small cap, continuous records of earnings and dividend payment over at least ten years, and the valuation was also not demanding.

But they also have differences – HLIND and RCE are controlled by local tycoons while Allianz is a MNC. REC had a smaller market cap then. It also operated in a niche market of personal loans to civil servants.

All time high was RM16.9 based on closing price on 3 Jan 2020. However, on dividend adjusted basis, today closing at RM14.94 is also all time high. The company has paid over RM3 in dividend in less than 4 years.

@DividendGuy67, thank you for your comments. Yes, this is my main concern with HLIND, that Quek has never intended to share the cash.
The track records of other Hong Leong companies are not exactly reassuring. I've mentioned a few examples earlier.

Fortunately, listing rules dictate that the controlling shareholder must seek EGM approval for any related party transaction that is above 5% of revenue/ profit/ asset value ...and the controlling shareholder has to abstain from the vote.
(They could still bypass minority shareholders' votes if RPT value is just below 5%, like how Genting Malaysia bailed out Empire Resorts by buying from Lim family's private asset.)
The key is the minority shareholders must be smart enough and united in rejecting any unfair deal. Such unity usually breaks down if the share price has been declining for a few years, as new shareholders/ traders may happily accept a privatization offer at 20% premium to prevailing share price, even though the offer price is a steep discount to the company's long term value. Recent example includes MMC privatization.

Fortunately, in HLIND case, the company performance has been good and consistent. I don't see any near term possibility for share price to drop to too low a level. Quek could not, for example, privatize at RM9 when share price drops to RM7
That doesn't stop Quek from trying to privatize at RM11 at current price of RM9. But I doubt it will succeed.

There could be other tricks that I'm not aware of. But as long as the Board is willing to pay dividends (dividends were paid even in mid 2020, albeit with a cut from 35sen to 25sen), the downside is limited.
To be prudent, I ignore the net cash in my valuation (you're right it's RM1.6b now; I wrote RM1.4b which should be 2022 net cash).
I don't like the RM400m investment in tile manufacturing, where there has been little explanation. But given that I've ignored the RM1.6b cash, I shall ignore RM400m too.
While 10X PE and 6% dividend yield may not be fantastic, it's good enough. I will only think about what to do with my holding (to sell or to hold) should market changes its mind, and for no good reason pushes it to RM10-11 range.

Fair enough. Afterall each of us has different return expectation and risk tolerance.

Dividend has grown modestly from 45sen in FY17 to 57sen in FY22, representing a CAGR of 4%. The current dividend yield at 6.3% implies limited downside – the reason that I continue to hold.

I will hesitate to add until there are signs of change by the Board.

I fully agree that this stock has a place within a dividend stock portfolio. My only gripe is its full potential has not realized.

The market may overlook a hidden gem for a few months, or even for a few years. But for 7 years? Note the share price has been going sideway since 2017.

Today a company fundamental data is easily accessible through various stock screeners. Not to mention professional investors who could access their Bloomberg terminals. How could a hidden gem be overlooked for 7 years in a competitive market?

More likely is, while this company has good potential, it also has defects (A more polite term will be it lacks the catalyst to unlock the value)

Yes, the company free cash flow runs into several hundred millions a year. It has accumulated 1.4b net cash. These are all very impressive. But holding idle cash incurs opportunity cost. In a stock market where cost of equity is about 10% per annum, cash gives only low single digit return.

This is the main reason that the Return on Equity has been falling from about 20% in the period of FY17 to FY19, to about 16% in FY21, and less than 15% in the past 12 months.

One major missing catalyst is when will the company better utilize the idle cash, through investment and/or return to shareholders. The least the management could do is to clearly communicate their intent to the investment community.

Clear communication is not self-promotion or inflating share price. Clear communication is actually being responsible to all shareholders - reassuring the minority shareholders that the Board and management have their best interest at heart, and outline what is being done to move the company forward.

Therefore, I do not see current situation as waiting for this jewel to be recognized by serious investors. Minority shareholders already have 7 years to “quietly and slowly” buy more. Surely 7 year is more than enough time to accumulate any position!

I see the situation as waiting for the Board and management to take steps to unlock the company value. They should take a leaf from YTL Power, where management has actively reached out to analysts and fund managers since last year to improve understanding. And now look at the results.

In a PE valuation model, share price = EPS * PE multiple.
It will take EV a long long time to displace ICE vehicles. So EPS will not be impacted, at least initially.
However, the impact to PE multiple can be immediate
This is happening to BAuto now. Despite solid market demand, its share has been de-rated by investors. 15% fall in a week

HLIND should take the lesson and prepare itself.
1. Work out a credible e-bike roadmap and communicate to the market
2. Clearly articulate its non-motorbike investments to the investing community
3. Return its mountain of idle cash to shareholders

This could re-rate the stock overnight. Surely the controlling shareholder also understand. The question is, are they willing to act on it?
Until they do, the institutional investors are standing at the sideline, despite Kenanga's recent coverage.

I like companies that publish their QR early (except Top Glove)

While car and motorcycle markets are different, HLIND shareholders need to keep an eye on how the local EV market evolves. The launch of Tesla's Model Y this week and BYD's Dolphin next week already leave their marks on BAuto share price.

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unicornbird, definitions of revenue and profits change under accounting standards. Frankly I don't know how to compare/ explain. To better understand life insurance, you need to look beyond just revenue and profit