Another useful input from CIMB on the supply-demand dynamics in the glove sector:

Hartalega’s in-house research indicates that glove buyers would need an inventory adjustment period of approximately 16 months (from peak inventory levels) before they replenish their inventory with new stocks. Hartalega believes inventory levels have peaked in Jun 2021 and hence it expects glove demand to recover by end-2022.

Hartalega did a projection analysis on the global glove demand for 2022- 2025F by assuming i) a 6% annual growth rate for the best case scenario, and ii) that 2022F glove demand would equal that of 2020 for the low case scenario. Note that the Malaysian Rubber Glove Manufacturers Association (MARGMA) estimated that global glove demand could grow 12-15% next year.

It estimates that in the best case scenario, the global supply-demand dynamics in the glove sector could reach equilibrium by 2024F. This is assuming an 80% capacity utilisation rate by then as well as no decommissioning of existing capacity. Should decommissioning happen, it projects the supply-demand dynamics in the glove sector would reach equilibrium earlier, by 2023F.

The report mentions MARGMA. MARGMA should be totally discredited by now given its unsubstantiated bullish forecasts at the height of pandemic, just like Frost Sullivan its rosy projection was used by Top Glove in its HK IPO document.

Extracted from several reports today:
Maybank:
1) Management has turned more bearish on the sector outlook given stiff competition. We understand that ASP has resumed its downward trend since June 22 after stabilising in Apr-May 22 and utilisation rate has dropped to 50% (in line with the industry), from 70% in Apr-June 22,
2) management expects the demand-supply equilibrium to take another 24 months to rebalance. Prior to 2024, it will focus on sharpening its capabilities and improving cost efficiency to prepare for recovery, and
3) management no longer enjoys premium pricing for its products due to stiff competition.

Affin:
Management mentioned that in a worst-case scenario, the current overcapacity situation could persist past 2023

Hong Leong:
We caution that Hartalega could be at risk of being booted out of the KLCI in the upcoming FTSE Bursa Malaysia KLCI semi-annual review should its share price deteriorate further, as it currently ranks at the 35th spot (based on 9th Aug closing).

It seems that the over capacity situation will persist for quite a while yet. Those looking for opportunity to add could probably wait. Exclusion from KLCI, if happens, could trigger another round of selloff as seen in other stocks.

With this ruling, motor insurance companies will automatically pick up the bill. It's only right that innocent accident victims should not go through the legal nightmare just because the motorists are at fault and insurance companies refuse to pay. But could there be unintended consequences?

With the ongoing liberalization, insurance companies need to better differentiate pricing based on motorists' past records, such as traffic summons.

"A landmark ruling by the Federal Court has held that victims of road accidents should be automatically compensated by insurance companies without requiring legal action to do so.
...
According to the report, of the eight appeals, five involved Pacific & Orient Insurance, Amgeneral Insurance, Allianz General Insurance Company, and Malaysian Motor Insurance Pool. The three-person bench, comprised of Rahman as well as Hasnah Mohammed Hashim and Rhodzariah Bujang, awarded RM150,000 in costs to each of the successful parties in the appeal.

The appeals came about as the insurance companies had obtained a declaration in the High Court to nullify the policies of motorists due to allegations of misconduct on the part of the vehicle owners, the FMT report said. This action had denied accident victims monetary compensation that had been due to them, prompting the appeals.
The appeals included a sambung bayar case, where the dispute arose when the vehicle owner attempted to claim on his vehicle following an accident.

However, he had “sold” his vehicle to a third party through such an arrangement, with the insurance company being unaware of this. When it learnt about this, it then obtained a declaration from the High Court to nullify the policy of the motorist, citing misconduct on the part of the vehicle owner. Following this, the insurer refused to cover the vehicle owner’s loss.

In another case, while the Sessions Court had found the driver of the other vehicle negligent after a full trial, the insurance company took a court order alleging it had been defrauded, and declined to pay the vehicle owner who was claiming for damages.

The case victim was eventually found to merely hold a paper judgement, which the Federal Court said was “not even worth the paper it was written on,” continuing that it was unfair because the victim’s constitutional rights to be treated fairly had been infringed"

https://paultan.org/2022/08/09/federal-court-rules-that-road-accident-victims-should-be-automatically-compensated-by-insurance-firms/

You can check the Circular to Shareholders published a few weeks ago.

Assuming no hiccup, over 90% of proceeds will be distributed to shareholders within 45 days of completion date, where completion date is expected to be 15 Aug. The remaining will be distributed within 12 months.

The quarterly report mentions a decrease in sales volume by 28%.

Based on my record, the shipment Q1FY22 was 10.09 billion. It means Q1FY23 shipment was 7.26 billion.

The report does not mention new capacity coming online, so can assume it remains unchanged at 43 billion. The utilization was therefore 7.26/ (43/4) = about 68% (assume shipment and production at the same rate).

If my calculation is right, this would be lower than historical standard. It is about the same level as Kossan's latest quarter.

It's much better than Top Glove which was about 56% in last quarter, not a surprise given Top Glove expanded aggressively, and is also catching up on the lost share in the US market.

I attended the EGM. As expected, questions about ALR financing came up.

To be fair, Litrak could not answer on behalf of ALR. So just like Gamuda, it could only point out conditions in ALR favor, such that it was triple A rated, first sustainable highway Sukuk, MGS yield has been coming down and so on.

It's funny that the Chairman assigned all the questions to their advisors, including questions which rightfully the Board itself should answer.

For example, when someone asked whether an extension would be given if ALR fails to raise funding in time, the Chairman asked Hong Leong to reply. But how could Hong Leong commit on behalf of Litrak board? So it was not a surprise that the Hong Leong guy just sidestepped the question and talked about something else.

This shows how much ownership the Board has in their company. I agree when someone mentioned that these people are probably busy looking for another job.

Company continues to buyback shares, while insiders from CEO to Vincent Tan continue to sell. The company buys back as if the share price is undervalued. But insiders action say otherwise. How nice. If the company has excess cash, why doesn't it distribute to shareholders as dividends instead of supporting the share price, only for insiders to take opportunity?

LPI has just released Q2 results. Its motor net claims incurred ratio for 2Q22 is 88.8%, as compared to just 60.8% in 2Q21, and 76.3% in 1Q22. The ratio is around low 70% before the pandemic.

According to its press release, "The increase was due to a higher frequency of motor claims reported as most vehicles were back on the road, and due to the increase in average third party bodily injury claims reserve as a result of an increasing trend in court awards."

I wonder if the factor of court catching up with backlog will also show up in Allianz General claim ratio in Q2.

Annual reports showed that in 2013 the market cap reached RM4.2b. But PBT and shareholders' fund then were only half of today's.

I noted GWP growth hit 19.9% in 2013, before slowing to about 3% in 2015-17. Last year growth was 7.2%. Maybe the slower growth has made the stock less appealing to the market.

Earlier someone commented that ALR financing threshold was 5%.

In today Gamuda EGM, the management clarified that this was a misunderstanding. During an earlier interview with The Edge, Gamuda management mentioned ALR's WACC was 5%, and not that ALR's financing threshold was 5%.

While Gamuda could not speak on behalf of ALR, the management sounded positive by drawing attention to the fact that 10Y MGS had gone down by 40 basis point from 4.37% earlier to 3.97% as of yesterday.

Refer to Note 36.4.1(c) in the 2021 Annual Report:
"The Group is subject to commodity risk with respect to price fluctuations in coal markets and attempts to limit its exposure to fluctuations in commodity prices by increasing its use of alternative fuels and renewable energies.
From time to time, and if a market exists, the Group hedges its commodity exposures through derivative instruments at the latest when a firm commitment is entered into or known, or where future cash flows are highly probable.
There is no outstanding commodity contract and commodity derivative instruments as at year end, accordingly, the Group is not exposed to commodity price risk."

The statement seems to imply difficulty in hedging its coal exposure. There was no outstanding coal contracts as of 2021 year end. There was also no derivative financial asset in the balance sheet as of Mar 2022.

During 2020-21, bulk cement ASP was in the range of RM200-250 per mT. ASP increased 30% to 65% to RM330. However coking coal price chart showed it had more than quadrupled from below USD100 per mT to above USD400 per mT.

If 50% operating cost consists of coal and energy (can't find the data), you're right it will be a problem, at least temporarily.

@dragon328, since we last spoke about Malayan Cement, the share price has declined by almost 30% from its recent height.
The bulk cement price hit almost RM330 per ton earlier this year before declining a bit. So the company should be be able to pass on most if not all of the rising input costs.
The market probably expects a decline in housing activities (as reflected in property sector share price) and the much talked about infrastructure projects not happening soon. But given the consolidated market, current price probably offer good safety margin for long term holding.

True. We've discussed this point before. However, usually the full valuation can only be realized during M&A, where the buyers are willing to pay the full value for controlling stake. At normal times rational minority investors like EPF, who has no control over the company, are right to demand a discount as their margin of safety.
Similar behavior can be observed in other companies too, for example YTL Power. Based on the recent M&A case in the UK market, the full valuation of its UK asset alone is already a few times over its current market cap. Yet I believe the market is also rational to value the company based only on its dividend yield rather than more elusive asset valuation.
Personally, as a patient investor here, knowing the EV, NBV growth etc gives me peace of mind on the downside protection, while hoping for dividend to grow in the future. When that happens share price should follow. But it probably takes time.

Why did you say GE donated in a smart way? Why can't other insurers copy its way?
If the issue remains unresolved in time, what are the likely action by BNM? Stop them from underwriting new policies?

Back to the topic of foreign insurers being forced to dispose 30% stake/ donation. Let's explore a bit.

You mentioned AIA/Prudential/Tokio Marine/Zurich. Assume their combined size in Malaysia is double of Allianz. Currently Allianz's market cap is ~RM4.5b (inclusive of ICPS). At a similar valuation, these four foreign insurers' Malaysian business equity value should be around RM10b.

If they are to be valued at say 50% higher, a 30% stake will worth around RM10b * 1.5 * 30% = RM4b to RM5b range. Not a small sum under current market condition, but still doable. For comparison, the twenty odd Bursa IPOs in 2021 including CTOS raised a total of RM2+ billion.

Who could be the buyers? Local banks like Affin and Am Bank have trimmed their insurance arms. Not sure if larger banks, especially the bancassurance partners of these foreign insurers will be willing to pay premium to acquire stakes.

I suppose GLIC like EPF, KWAP, Khazanah have the capacity to take a slice or even as sole partner. But again are they willing to pay premium?

The negotiation over valuation will not be easy. Don't see why these local investors would like to pay premium for insurers given the competitive market, especially listed insurers are currently priced below EVs. On the other hand, the foreign insurers could not justify to their shareholders if they sell on the cheap. Perhaps that was the reason that Great Eastern donated RM2billion?

I see. It's quite counter intuitive. Normally when applying a low discount rate to future cash flows will result in a higher valuation. It seems that a lot of industry specific knowledge is required to get a handle on life insurers' valuation.

@dragon328, thank you for sharing your thought. It's very educational.

Your last point is very important. Even EPF is just another passive investor like you and me. We depend on Yeoh family to not only manage the underlying assets well, but also to share the fruits through improved dividends. If they do that, the share price could go higher. If they don't, even EPF could not do much about it.

Because of such consideration, in my view there are two types of valuation. One type of valuation if for controlling shareholders like the Yeoh family. They can value YTL Power value like how KKR values Northumbrian. They can exercise power over the company while others can't.

As minority investors have to ride on the goodwill of controlling shareholders, their valuation have to be conservative. That is probably why YTL Power share price is driven more by the dividend yield (which is tangible to minority shareholders) rather than company's asset values (don't know when they will be unlocked).

But as mentioned before, at current dividend yield the share price should have support. When the Group MD Datuk Yeoh talked to the press about under valuation it also sent a positive signal that they care about the share price (in some companies the controlling shareholders don't). Hope Datuk Yeoh can back up his words with not only good results but also better dividends.

I wasn't aware that there was a 70% cap on gearing. But it makes sense that regulator doesn't want utilities to take on too much risk.

Compare to Northumbrian, Malaysia utilities' valuation is a lot lower. However foreign shareholding in Tenaga remains low, and even lower if passive funds like Vanguard, State Street and Blackrock are excluded. I've also counted probably just one foreign fund on YTL Power Top 30 shareholding.

Their lower valuations should have adequately compensated for the regulatory risk (Tenaga) and currency risk (Tenaga and YTL Power). But why foreign funds shun these Malaysian utilities while they chase after more expensive assets like Northumbrian or ElectraNet? Are there other risks that are putting them off?

Based on what I can find, quite a few public listed life insurers in this region, with the exception of AIA, are priced below their EV!

They are not confined to Chinese insurers such as China Life or Ping An, where valuations are depressed. Take for example, The Edge Saturday edition on May 14 had a table extracted from Bloomberg showing Great Eastern and Prudential were sold at 0.53X and 0.88X P/EV respectively.

Why does the market place a huge discount on life insurers? And not just in Malaysia. Have I missed something?

RM3.5b EV is quite close to RHB's and Am Bank's estimate of RM3.3b.

I don't understand when the minutes say discounted at "risk free rate". Does it mean the future profits are discounted at 10 year MGS, which is about 4%, rather than a higher rate?

If discounted at 4%, the EV will be inflated. As a contrast, in page 69 of the AIA presentation I mentioned earlier, AIA adopted a 8.56% discount rate for Malaysia (4% 10Y gov bonds + 4.56% risk premium).

What are the implications?

@dragon328, the case becomes much clearer now with your explanation. Yes, I overlooked. The RCV multiplier should be in EV rather than MC.

I like the way you check using equity cashflow yield. If I understand correctly, after netting off the equity's share of capex, what remains should be the free cash flow right?

I have a side question. I'm curious about how KKR could justify its investment case.

Based on your calculation, the KKR's equity yield is 4.9%. Presumably most of it will be paid out as dividends. Future capital gain is probably limited, not unless KKR can sell the asset at an even higher multiplier than 1.5X RCV (RCV organic growth is probably in low single digit, in line with CK group's return).

However private equities like KKR usually aim for double digit return. That is after their fat fee! At least this is the expectation of typical PE investors. This is only possible through leverage.

However KKR's borrowing cost will have to higher than 10Y Treasury yield, meaning at least 3%. With 4.9% equity yield for Northumbrian Water, every dollar of debt that KKR takes on can only earns 4.9% - borrowing cost (minimum 3%) = 1+% at best.

Does it mean KKR has to use maybe 7 times, or even up to 10 times leverage in order to achieve a desired double digit return? It looks quite crazy.

Additonoal information can be found in another document.
"Ofwat commissioned EE to assess the premium to RCV on listed companies. Its decomposition analysis indicated a residual market premium over RCV of 1.04 - 1.08x in February 2020, once outperformance from factors such as totex, debt finance and ODIs was reflected"

In other words, the earlier expectation was a slight market premium over the RCV. Figure 18 in page 88 also shows historically valuation swinged from 20% discount to 30-40% premium, and the mean was at single digit premium.
https://assets.publishing.service.gov.uk/media/5eda1e5ee90e071b734d2ca7/Northumbrian_Water_Reply_to_Ofwat_response_27.05.2020_NON-CONFIDENTIAL.pdf

CK and Hutchison have strong balance sheets. It's unusual for them to sell assets on the cheap. The 17% discount in the deal probably shows the current market condition is probably quite unfavourable.

The document has further explanation on market value versus RCV
"If investors expect the company to perform in line with the regulatory determination (e.g. in terms of costs, incentives and returns) in perpetuity, then the MV of the business will be equal to the RCV, and the MAR would be 1. If investors forecast that the actual performance of the company would be different to the regulatory settlement, then the MAR could be greater than 1 (if investors expect to perform better) or less than 1 (if investors expect to underperform)."

According to company websites, Northumbrian Water serves 2.7 million customers, versus Wessex Water serves 2.8 million. They're probably in the same league. Northumbrian Water's valuation over its RCV (Regulatory Capital Value) could provide a guidance on how much Wessex Water is worth today.

Northumbrian's RCV can be found on page 53 of its 2021 Annual Report
"RCV at 31 March 2021 was £4,196.4m"
https://www.nwg.co.uk/globalassets/corporate/apr/annual-report-and-financial-statements-2020_21_final_1.pdf

Given KKR's transaction values the company at only £3,468m, the valuation put a discount of 1 - 3468/4196.4 = 17.4% on the RCV!

After the collapase of UK Power Networks deal, KKR acquired a 25% stake in Northumbrian Water. Based on the acquisition price, the company is valued at £3,468m.

I checked the OfWat ranking, Northumbrian Water is also quite high on the table, which may be positive for valuation.

However, according to Forbe's article below, the original acquistion cost was £2.4 billion in 2011. That means the CAGR return over 11 years is only 3.4%. I'm a bit surprised that the return is rather low.
https://www.forbes.com/sites/robertolsen/2022/07/15/kkr-to-invest-1-billion-in-british-water-company-owned-by-li-ka-shings-ck-group/?sh=33bd74827576

Not to mentioned on one year basis, Pound Sterling has depreciated by 16% against US Dollar (from 1.42 to current 1.19). Given HK Dollar is pegged to US Dollar, the gain for Li's HK based companies will be even smaller.

As shown in page 70-71 of the Yearbook, some of the GIs' combined ratios are quite close to 100%. Axa Affin General, which should have scale, is 99.82% (98.71% in 2020).
The best performer is Loanpac under LPI, where combined ratio is 60% (65% in 2020). I suppose it's helped by its dominance in fire insurance, where industry net claim ratio is only 41%, much lower than motor's 55%.
Fire net claim ratio is only 13% for Loanpac! Whereas Allianz General is as high as 70%.
Net commission ratio, Loanpac is 6%, versus Allianz General 15%.
Any idea why the huge discrepancy in performance?
No wonder LPI share price commands a premium despite limited growth prospect in the sector.

@EVEBITDA, yes, according to the list of conditionality published last month, the approval from all three ministries have already been obtained. The remaining conditions are for the vendor and purchaser.
This has greatly reduced the political risk, where the Parliament is dissolved before necessary approvals can be obtained.

Meanwhile, the Minister has mentioned LDP and SPRINT "concession will be extended for five to 10 years". In other words, up to to 2040-44 if necessary.

This would have provided sufficient buffer against uncertainty. Therefore even if 10Y AAA were to hit 5% (it's not), I don't believe 5% is a hard limit. I can't find any mention that crossing 5% the deal will fall through. Not sure where the 5% comes from.

But I'm interested to know at what level of yield (I believe higher than 5%) the financing could be in trouble.

RAM also stated that "If it performs to the Issuer’s expectations, the Proposed Sukuk will be fully cash backed by May 2033, against RAM’s expectation of May 2035 under the sensitised projection"

In other words, RAM expects Sukuk to be repaid shortly after the original concession period ends by 2030-34.

In May RAM has assigned triple A rating to ALR's proposed Sukuk. As of yesterday, 10Y MGS yield is 4.07% as mentioned by EVEBITDA. 10Y Corp AAA yield at 4.67%.

https://www.ram.com.my/pressrelease/?prviewid=5986
https://cweb.bpam.com.my/op/o4008.asp

I just realized I missed an important point.

The projected FCFF of RM2,536m by Litrak's management (page 60) includes government compensation for not allowing it to incresae toll.

However, ALR forgoes compensation which totals about RM2.31b ( =RM1.5b + RM1.62 * 50%, before converting to present value). Refer page 14.

On top of that, it needs to pay RM2.7b to Litrak upfront.

Therefore it will definitely need the extension of concession, and also a low borrowing rate to make the deal feasible. Just that it's unclear how low it has to be.

Am I right?

Refer to article below. The Work Minister said "For three highways [Kesas, SPRINT and LDP], the concession will be extended for five to 10 years, while [concession for] the SMART tunnel may be shortened, depending on the traffic data that will be reviewed from time to time"

https://www.theedgemarkets.com/article/highway-restructuring-concession-extension-three-highways-alr-shareholders-are-notforprofit

By allowing the concession to be extended as necessary, it lower ALR's risk that concession runs out before it could fully pay down its Sukuk. This may in turn improves the Sukuk's rating and lower the rate. But Minister only mentioned traffic volume as reason for extension.

Thank you for your explanation. Let me try to understand the logic.

Based on my understanding, Affin looked at Litrak existing capital structure and other parameters, and it determined Litrak's WACC was 7.95% (page 58).

Applying this discount rate to management projected FCFF, it arrived at an equity value of 2,165 + 371 = RM2,536m, which was less than ALR's offer of 2,326 + 452 = RM2,778m (page 60)

That means if ALR were to use the same projected FCFF, its discount rate will have to be lower in order to arrive at the larger equity value of RM2,778m. But since the value is not much larger, the discount rate is probably not lower than 7%.

Given that ALR's funding is probably 100% debt, as long as its Sukuk rate is below 7%, the financing should be secured, right?

@EVEBITDA, good to hear from you.
Yes, the market is forward looking. BNM's subsequent OPR hikes would have been priced in. Unless there is a major market turmoil in the coming weeks ...
I also remember in ALR proposal they could extend concession periods (by another 6 years or so) to cover potentially higher debt servicing. I hope that provides sufficient buffer.

According to the circular issued today (page 56), Litrak Group level cost of debt is 6%.
In your view, what is the upper limit of the Sukuk rate that will put ALR funding at risk?

After Affin's AmGeneral Insurance merges with Liberty Insurance, the combined entity will overtake Allianz General to become the largest motor insurer in Malaysia. Do you forsee a lot more competition on the general insurance side?
Some years back the industry combined ratio was above 100%. With the ongoing market liberalization, could GI become loss making again, at least in underwriting losses?

Yeah, overlooked. So AIA Malaysia NBV is 4 to 5 times of Allianz, and still growing fast, quite amazing.

If I understand correctly, it’s is like AIA sells more premium high margin products to a more affluent market, whereas Allianz sells affordable average margin products to the mass market.
An imperfect analogy could be Louis Vuitton versus Coach? One is luxury, and the other affordable luxury.
Both have similar NBV in 2021 (Allianz 275m versus AIA 283m), but Allianz’s NBV growth slightly outpace AIA over a 3-year period, although AIA grew faster in 2021 (at 26% versus Allianz 15%)

Talking about margin, based on Allianz Malaysia analyst presentation, the 2021 NBV margin was 40% (NBV 275.2m divided by ANP 687.2m)
How does it compare to the industry standard? I'm not sure where to get such info.

But I managed to get AIA data. Refer page 49. VONB margin in Malaysia was 57% in 2021, and was even higher at 60% in 2020. Why do AIA products enjoy a far higher margin than Allianz?

https://www.aia.com/content/dam/group/en/docs/results-day/AIA%20Group%20FY%202021%20Analyst%20Presentation%20Final.pdf.coredownload.inline.pdf

They are not comparable. You have to weigh the risk versus reward.
FD return is guaranteed. When was the last time a Malaysian bank failed to honor its FD commitment? Even if the bank fails, depositors are covered up to RM250,000.
On the other hand, it's not uncommon for such deals to fall through for a variety of reasons. The arbitrage trade is not without risk.
Gamuda and Litrak have just announced to extend deadline by 1 month. Even though I'm quite confident that the deal will go through eventually, I've sold off some shares to lock in profit.

@dragon328, yes, we've discussed about the UK regulatory asset being undervalued.

However, it seems that it's a market norm to heavily discount these asset heavy utilities. Not just YTL Power. LKS's son Victor Li, chairman of CK Asset Holdings and CK Infrastructure Holdings, also lamented their assets being undervalued.

It's not that professional investors don't see the potential. They probably want to be prudent, and focus on cash flow and dividends. If the company assets are sold for a fat profit in the future, and assuming the windfalls are indeed returned to shareholders as cash, count that as bonus. But these managers won't include the windfall into their valuation. When big players refuse to pay more for the shares, the share price remains depressed.

On the other hand, the controlling shareholders like LKS or Yeoh family could afford to view the values differently. This is because they call the shot. They can decide when to sell, what price to sell, and whether to distribute the sales proceed.

As retail investors, even long term ones, we have to set aside some buffer since we don't control the company.

Personally for me, as long as YTL Power continues to pay sustainable dividends (on the assumption that key businesses continue to do well), the downside is protected. I'm not be too concerned about share price. Any upside will then be a bonus.

Yeah you're right. Almost all of AIA ILP is classified under whole life, whereas Allianz is under endowment. With your explanation it makes sense now.

When I mentioned Etiqa Life has a high proportion of ILP, I refer to page 98-99 (section on new policies issued - individual). I focus only on new policies issued in 2021.
Under the sub-heading of total (for current year), under the Investment-Linked column, total premium = RM175,844,735 (single premiums) + RM520,438,603 (annual premiums) = RM696,283,338.
Under the Ordinary Life column (I suppose ordinary life means traditional products, right?), total premium = RM9,146,117 (single premium) + RM82,263,788 = RM91,409,905.
This is how I've arrived at the conclusion that Etiqa also sells a very high proportion of new ILP policies (RM696 million premium) as opposed to traditional policies (just RM91m premium)

I also check the section "Policies In Force at End of Year - Individual" under page 122-123.
For Allianz Life, the annual premium under "Ordinary Life" is RM1,528,13,953, versus RM2,070,966,065 under "Investment-Linked". Yes, the proportion of Allianz ILP (within in force policies) is higher, but not very much higher.
On the other hand, take Prudential for example. Annual premium under "Ordinary Life" is RM2,746,671,221. Under "Investment-Linked" is RM7,515,202,224. Prudential ILP (within in force policies) is almost triple the size of its ordinary life!
Even HLA ILP is more than double the size of its ordinary life.
It seems that the high proportion ILP is quite common across insurers, where some have a lot higher concentration of ILP.
Have I interpreted the data correctly?

@dragon328, thanks for the explanation. I agree with you that given that the spread between YTL Power dividend yield with MGS yield is large, the impact due to interest rate hike will be more modest.

Meanwhile, there is a piece of news which may shed some light on how regulated assets in UK fare in inflationary environment. Earlier Li Ka Shing's CK Infrastructure wanted to sell its UK Power Network (UKPN) to a consortium led by KKR and Macquarie. But at last minute CK raised the selling price due to inflation (and also currency movement). The deal collapsed. The action of raising price supports the notion that UK regulated utilities fare well with rising inflation.

(A difference is in UKPN case, its next 5-year regulatory period will start in 2023. So unlike Wessex Water it does not need to wait long for tariff reset)

The FT article explains:
Privatised infrastructure assets in the UK — including the electricity, gas and water networks — benefit from rising inflation because their returns are set by the regulator and linked to either the CPI or RPI index. The benefits generally outweigh the costs associated with rising inflation, such as staff, maintenance and materials, as the businesses are not labour-intensive.
Colm Gibson, managing director of Berkeley Research Group, said interest in UK infrastructure assets was likely to remain strong despite UK government threats to impose windfall taxes on parts of the sector such as oil and gas companies and electricity generators.
“Because utilities’ asset values and revenue streams are both indexed to inflation and backed by regulatory guarantees, these industries are regarded as safe havens by investors,” he said. “This is particularly true given the current inflation outlook.”

https://www.ft.com/content/62113516-4f4b-4a82-9e71-11845f56d65f

Actually I'm not sure whether the market is overly optimistic that UK government will not intervene. The government will risk public backlash if it allows utilities to profit too much from the public misery. Recall in May the UK government imposed a 25% windfall tax (though this is on oil & gas companies, not utilities).

Back in Malaysia, Tenaga share price has suffered greatly due to the market's doubt on Malaysian government's commitment to uphold the ICPT mechanism. Despite the government's pledge to compensate Tenaga for the under recovery, Tenaga cash flow will be strained. No one knows what happen in the next review 6 months later.

But comparing UK ro Malaysia, is the market justified in being pessimistic on Malaysian utilities assets while bullish on UK's?

I see. There seems to be a lot more considerations than profit alone when insurance companies push their products.

After reading you comment, I checked out the ISM yearbook for new policies issued in 2021. I found Allianz underwrote a lot of endowment policies than whole life policies. However the market leader Great Eastern has slightly more whole life than endowment. Is there a reason for their different emphasis?

The other point is, as you've mentioned in the past, Allianz sells a lot of investment-linked products which offers better margin. This seems to be a common industry practice. For the entire industry, the premium for new ILP was RM6.6 billion versus RM2.2 billion for traditional products.

In fact companies like AIA, Prudential and even Etiqa sold a much higher proportion of ILP. What is holding Allianz back from selling even more high margin ILPs like its peers? Does it have to do with agent commission factor too?

@dragon328, I once read that UK utilities in benefit from inflation as they can pass on the cost. However, how can Wessex Water pass on its higher cost such as higher borrowing cost? At least not until the next regulatory period right?

When interest rate rises, yield seeking investors may also demand higher yield from dividend stocks such as REITs and utilities. And YTL Power is considered a dividend stock. What do you think of this effect?

High end furniture chain RH slashed its 2022 revenue outlook.
https://www.cnbc.com/2022/06/29/rh-shares-slide-after-company-lowers-its-outlook-for-the-year.html

Am I right that from shareholders stand point, whether profits are recognized in early or later years does not change the overall profitability? The only challenge is year to year reported profit could be more volatile and obscure, making it difficult if shareholders who value the shares based on reported profit (since Allianz doesn't disclose its EV)

In what way are distributors affected? Isn't profit recognition concern only Allianz and its shareholders, and maybe the tax authorities? Do you mean the distributors are incentivized based on the Allianz's reported annual profit, such that distributors' incentives could be affected if profit recognitions are pushed out to the later years?

What do you mean by product design that is beneficial under IFRS17?
By benefit do you mean greater recognition of profits in the earlier years, but at the expense of lesser profit recognition in the later years? That is more like a matter of presentation.
Any example?

Does it really make a difference in the business? Wouldn't an accountant who has been working in the insurance sector for many years would have picked up sufficient actuarial knowledge?