Maybank Investment Bank (Maybank IB) raised its forecasts and Gordon Growth Model (GGM)-derived target price (TP) to RM1.70 from RM1.40 for MNRB Holdings Bhd, as its third quarter financial results ended Dec 31, 2023 (3QFY2024) beat expectations.
Besides that, the research house said its investment income continued to surprise positively, alongside lower claims.
“Our forecasts are raised by 56%, 18% and 20% respectively for FY24-FY26E, largely to factor in higher investment income assumptions and we maintain our BUY call.
“Our GGM-derived TP is raised to RM1.70 from RM1.40 on rolling forward valuations to FY25 from CY24, with cost of equity (COE) of 10.6%, return on equity (ROE) of 6.8% and long term (LT) growth of 3.5%,” it said in its research note today (Feb 8).
MNRB’s 3QFY24 net profit of RM85 million, which is 47% year-on-year (YoY), 104% quarter-on-quarter (QoQ), took 9MFY24 net profit to RM196 million, a surge of 310% YoY – above Maybank IB’s previous full-year forecast of RM155 million.
“Positively, the reinsurance business benefited from lower claims, given the large flood claims in the previous year, while the general takaful business continued to see robust motor premium growth.
“That MNRB’s 3QFY24 earnings were a strong beat may also be attributable to mainly to strong investment returns, a rise of 203% QoQ) – 9MFY24 investment return more than doubled YoY,” it said.
The research house said the reinsurance business Malaysian Reinsurance Bhd (Malaysian RE) parent turned in a net profit of RM150 million for 9MFY24 compared to RM29 million for 9MFY23.
“The much-improved performance was due to lower claims, given than 9MFY23 results were impacted by the Great Malaysian Flood. The better results were also due to higher investment income.”
Besides that, Maybank IB said general takaful business had a commendable performance, as it saw a revenue jump 33% YoY in 9MFY24 due to robust motor premiums and higher agency sales.
“Its net profit surged as a result of the higher revenue as well as better investment income and wakalah fees.
“The family takaful business saw its revenue decline YoY due to lower revenue from its bancatakaful and agency channels, but net profit held up due to higher investment income,” it added.
The risk factors of the research house’s call include thin underwriting margins of the reinsurance businesses, the risk of potential capital calls, the risk of full liberalization of the reinsurance industry and potential mark-to-market losses amid rising interest rates.
“Besides that, the impact of Malaysia Financial Reporting Standard (MFRS 17), particularly on the earnings of the Family Takaful business and the impact of full de-tariffication on the general takaful business, as well further consolidation within the insurance industry, are among the risk factors,” it added.
