PP 7767/09/2010(025354)

Malaysia 1 March
RHB2010
Research
Institute Sdn Bhd

Corporate Highlights A member of the

RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e 1 March 2010
MARKET DATELINE

Share Price : RM2.73

MNRB Holdings Fair Value : RM2.94
Recom : Market Perform
Stronger Earnings From Better Claims Experience and (Maintained)
Reversal Of Provision

Table 1 : Investment Statistics (MNRB; Code: 6459) Bloomberg: MNRB MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing DY
Mar (RMm) (RMm) (sen) (%) (x) (Sen) (x) (x) (%) (%) (%)
2009 (a) 1173.2 26.3 12.3 -84.6 22.1 - 0.6 17.6 2.9 0.2 3.7
2010 (f) 1421.9 63.5 29.8 141.4 9.2 - 0.6 8.3 6.7 0.2 1.5
2011 (f) 1629.9 73.0 34.3 15.1 8.0 - 0.6 7.3 7.2 0.2 3.7
2012 (f) 1864.4 76.0 35.7 4.0 7.7 - 0.5 7.0 7.1 0.2 3.7
Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates
♦ Back in the black. MNRB recorded a turnaround in 3QFY03/10 results with RHBRI Vs. Consensus
net profit of RM80.1m, bringing 9MFY03/10 earnings to RM54.4m, above Above
our full year net profit forecast of RM12.7m. The key variance is higher- In Line
Below
than-expected general reinsurance transfer, due to: 1) better claims
experience; and 2) reversal of RM51.8m provision made in 1HFY10 for Issued Capital (m shares) 213.1
claims reserving. Market Cap (RMm) 681.8
Daily Trading Vol (m shs) 0.05
♦ Intact revenue growth. 3QFY10 revenue grew by 0.5% qoq and 8.7%
52wk Price Range (RM) 2.60-3.39
yoy, supported by higher reinsurance gross premium (+1.5% qoq, +8.6%
Major Shareholders: (%)
yoy) and re-takaful wakalah fees (+50.6% qoq, +140% yoy). We believe Skim Amanah Saham 49.08
the growth was due to the fruitful overseas expansion strategy to capture Bumiputra
more business from larger market and move away from dependency on VC PNB 11.7

(voluntary cession) in domestic market. FYE Mar FY10 FY11 FY12

♦ Better claims experience. Its reinsurance transfer achieved a EPS chg (%) 400.9 19.1 21.6
commendable growth, mainly due to the absence of large claims losses and Var to Cons (%) - - -

writeback on RM51.8m provision made for claims reserving under RBC

Share Price Chart
framework. However, going forward, we remain cautious on its claims
experience, which has become more volatile, due to larger risk accepted
PER = 30x
from overseas and possible affect from weather abnormalities. Thus, we are PER = 20x
PER = 10x
conservatively revising our claims ratio assumption to 67% from 68% in
FY10-12.
♦ Associate share continues to be positive. Labuan Re recorded RM1.3m
share of profit in 3QFY10, bringing it to RM13.3m in 9MFY10 vs. RM12.8m
share of loss in 9MFY09. This was attributed to the absence of large natural
disasters claims from Lloyd’s scheme that the associate participates in. Relative Performance To FBM KLCI
♦ Risks. The risks include: 1) stronger-than-expected premium growth; 2)
FBM KLCI
lower-than-expected jump in claims ratio; and 3) MTM gain on investments.
♦ Forecasts. We have adjusted downward reinsurance claims ratio (see
above) in view of better claims experience, albeit higher than normalise
claims ratio of 65% and reversed the claims reserving provision of
RM51.8m. As a result, our earnings forecasts were raised by 19.1-400.9% MNRB Holdings

for FY10-12.
♦ Investment case. We remain cautious on its overseas expansions strategy
given the volatile claims trend despite strong top line growth, which may
potentially hurt its bottom line. This raises the uncertainties about dividend
payout that will continue to weigh down the share price performance.
Hence, we maintain our Market Perform recommendation on the stock Low Yee Huap, CFA
with a fair value of RM2.94 based on 0.7x FY03/09 NTA, reflecting the rising (603) 92802641
uncertainty on its future performance and lower dividend yield vis-à-vis low.yee.huap@rhb.com.my
historical numbers.

Please read important disclosures at the end of this report.

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 1 March 2010

Table 2. Summary of Quarterly Results

3Q09 2Q10 3Q10 QoQ YoY 9M 9M YoY
FYE Mar (RMm) Comments
(%) (%) FY09 FY10 (%)
Revenue 315.7 341.3 343.1 0.5 8.7 890.1 1024.7 15.1 The higher revenue was due to
the increase in gross reinsurance
premium and higher Wakalah
fees earned by takaful and re-
takaful subsidiaries.
Reinsurance 275.1 294.5 298.8 1.5 8.6 759.1 886.7 16.8
Takaful 38.6 46.1 45.2 -1.9 17.2 123.3 137.6 11.6
Invt hldgs 0.4 3.8 3.7 -3.4 776.6 2.0 11.3 459.9
Re-Takaful 1.6 2.5 3.8 50.6 140.0 5.7 8.1 43.8
Profit fr general -4.2 -2.7 100.3 >100 >100 17.7 67.7 283.5 Improved claims ratio
reinsurance experience.
SF’s contribution -4.7 -1.2 -0.3 -75.5 -93.7 -12.6 -5.9 -53.4 9MFY09 affected by substantially
higher management fees post
group restructuring.

Associates -2.4 4.3 1.3 -69.8 -154.7 -12.8 13.3 -204.0 Improvement due to absence of
catastrophic losses vs. 9MFY09
which was affected by Ike and
Gustav hurricanes and
impairment of investment.
Pretax profit -11.4 0.4 101.3 >100 >100 -7.7 75.1 >100 Includes one-off writeback on
RM51.8m provision made for
claims reserving in 1HFY10.
Reinsurance -7.7 0.6 102.2 17648.6 >100 3.4 79.4 2242.9
Takaful 2.3 4.1 4.6 12.4 101.9 9.0 14.1 56.4
Invt hldgs -5.7 -4.8 -5.8 20.0 1.2 -17.3 -19.3 11.5
Re-Takaful 0.0 0.8 2.3 168.8 5871.1 1.0 3.6 263.8
Adjustment -0.3 -0.3 -2.1 573.5 569.2 -3.8 -2.7 -29.4
Taxation -2.5 -3.9 -21.1 444.5 753.8 -13.7 -20.7 51.2
Tax rate (%) -21.8 -970.3 -20.9 178.1 -27.6 1) 3QFY10 effective tax rate
lower than statutory tax rate due
to different tax rate for offshore
reinsurance business and
Labuan-incorporated associate.
2) 9MFY10 higher effective tax
rate mainly due to losses which
could not be set off against
taxable profits made by other
subsidiaries.
Net Profit -13.9 -3.5 80.1 >100 >100 -21.4 54.4 >100
Source: Company, RHBRI

Table 3. Earnings Forecasts Table 4. Reinsurance Forecast Assumptions

FYE Mar (RMm) FY09a FY10F FY11F FY12F FYE Mar FY10F FY11F FY12F
(%)
Turnover 1173.2 1421.9 1629.9 1864.4 Premium growth 18.0 15.0 15.0
Gross premium 941.0 1156.8 1330.3 1529.9 Retention ratio 86.0 86.0 86.0
Investment income 52.7 63.9 75.4 84.6 NEP/GWP 80.0 80.0 80.0
Investment income frm Sfunds 18.0 16.3 17.1 17.9 NEP/NWP 93.0 93.0 93.0
Takaful contributions 161.4 184.9 207.1 232.0 Claims ratio 67.0 67.0 67.0
Commission ratio 27.0 27.0 27.0
Surplus transfer 55.0 61.4 71.8 75.1 Mgmt exp ratio 7.0 7.0 7.0
From s'holders funds (1.9) 2.1 3.1 0.6 Total exp ratio 101.0 101.0 101.0
Int exp (7.1) (9.0) (9.0) (9.0) Invt return 3.2 3.2 3.2
Associate (5.5) 27.0 29.6 32.6 Source: RHBRI estimates

Pretax 40.5 81.4 95.5 99.3

Tax (14.2) (17.9) (22.4) (23.3)
Net 26.3 63.5 73.0 76.0
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law.
The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may
differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not
to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein
in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated
persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for
the actions of third parties in this respect.

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