Initiating coverage with a HOLD, TP of MYR1.10

MNRB Holdings (MNRB) provides exposure to Malaysia’s only domestic player in the retakaful and general reinsurance space, as well as to family and general takaful businesses in the country. Our Gordon Growth Model (GGM)-derived target price of MYR1.10 implies a prospective CY23 PER of 6.1x, which would be in-line with its long-term one-year forward rolling PER mean. We initiate coverage with a HOLD.

A suite of insurance/takaful offerings

MNRB group’s business comprises: a) Reinsurance and Retakaful in Malaysia and overseas through Malaysian Reinsurance Bhd (Malaysian Re), which commands a 60% market share in the domestic reinsurance space, and b) Family and General Takaful, through wholly-owned Takaful Ikhlas Family Bhd (TIFB) and Takaful Ikhlas General Bhd (TIGB), respectively. Based on the cumulative results of just the three main entities, the reinsurance/retakaful accounted for 50% of group net profit in FYE3/22, with contributions from TIGB and TIFB of 26% and 24% respectively

Net profit growth to drive ROE expansion

We expect MNRB group’s gross earned premiums/contributions to rise by 8%/4% in FY23/FY24E versus 16% in FY/22, amid more moderate reinsurance premium growth, as well as slower domestic consumption growth. Nevertheless, we see operating profit before tax expanding at a faster rate of 36%/7% in FY23/24E (-47% in FY/22), supported by lower fair value losses and higher investment income amid rising interest rates. All in, we expect MNRB’s net profit to rise 16%/9%/5% in FY23/24/25E (FY22- 25E 3-year net profit CAGR of 10%), and ROAEs to improve to 5.3%/5.5%/5.5% in FY23/24/25E from 4.7% in FYE22.

Target price MYR1.10

We value MNRB on a Gordon Growth Model, the key parameters being: risk- free rate 4.5%, cost of equity 9.5%, CY23E ROE 5.4% and LT growth 3.5%. This yields a PBV of 0.32x, which translates to a target price of MYR1.10 on MNRB’s CY23E book value per share of MYR3.41. At MYR1.10, the stock would trade at a prospective CY23 PER of 6.1x, which would be in line with its long-term one-year forward rolling PER mean.

Source: Maybank Research - 8 Aug 2022