MNRB Holdings - Spectacular Earnings Surprise
Author: kiasutrader | Publish date: Fri, 1 Mar 10:10 | >> Read article in Blog website
MNRB's 9MFY13 net profit at RM97.1m was above our expectations, accounting for 124% of our full FY13 earnings estimate. The 91.6% surge in profit was mainly due to lower net claims ratio, 24.4% higher investment income, and an improvement in
underwriting margins. We take the opportunity to upgrade our earnings estimates by as much as 50% for FY13/14 and thus upgrade the stock to a BUY, pegged to 0.6x FY14 BV. The stock is a laggard amongst reinsurers in the region which trade at closer to 1x BV with a 29% upside to our fair value.
Exceeded expectations. MNRB's 9MFY13 net profit at RM97.1m was above our expectations, accounting for 124% of our full year earnings estimates. During 3QFY2013, the group registered a net profit of RM59.0m, 333% higher than the previous year's corresponding period and higher q-o-q from 2Q's RM12.3m loss. The 9MFY13 profit surge of 91.6% was mainly due to: i) significantly lower net claims ratios across a few key business segments, ii) 24.4% higher investment income, iii) improvements in underwriting margins as well as increase in net profit margins from 3.2% to 5.6%. This was however
offset by: i) overall moderate growth of 8.4% in premiums/contributions, and ii) higher fee and commission expenses growth.
For fiscal year ended 31.3.12, a final dividend of 17% less tax was paid on 26.10.12. This is about 39% of its full-year earnings.
For fiscal year ended 31.3.13, dividend is expected to be not less than 25% less tax, assuming that the 4th quarter earning is the same or not less than 19.60 sen per share.
As at 31.12.12, the NTA of the stock was RM5.50 per share. The stock was last traded at RM2.89.
My concern about this stock is that there is no consistency in its earnings. This is perhaps the reason why the stock is being traded at such a big discount to its net tangible assets. Nonetheless, at RM2.89, the stock should eventually turn out to be an excellent buy.
As usual, you buy at your own risk.