Recently, I was looking into MNRB, the Malaysia's only and one local reinsurer and I came across this article by Calvin Tan Research with the title of "MNRB - Top 10 Dangers You Must Know About MNRB". I noticed that are quite a few mistakes in that article in which I would like to point out. (Hey Calvin, this is not a personal attack on your article, just trying to provide the readers with another point of view).
1) MNRB stopped paying out dividend after year 2014.
I have look at this specifically and I found the answer on MNRB's reply letter to MSWG in 2018. So, here's the reply of MNRB.
" As MNRB is being by the governed by the FSA2013 and regulated by the BNM, it prohibits any declaration of dividend without written approval of BNM". And one of the determinants that BNM look for is their strength of capital ratio. The capital ratio of two of its subsidiaries namely i) Malaysian Re and ii) Takaful Ikhlas are adequate to meet their current business needs BUT does not allow them to grow and capture business opportunities in future. "
This is perhaps why BNM did not approve their dividend plans in the past. So, MNRB has decided to undertake a right issue offering in 2018 for the purpose of future expansions. As you can see, Takaful Ikhlas (takaful arm of MNRB) has signed a 5-year Bancatakaful partnership with CIMB in August 2019 just one year after their right issues (Which is their expansion plan). The company also declared a 2.5sen interim dividend for the first half of FY2020. I believed there will be another dividend incoming as the management has mentioned they will pay out 30% to 60% of its profit after tax as dividend.
This is the link if you are interested.
https://www.mnrb.com.my/sites/default/files/reply_letter_to_mswg_for_mnrbs_45th_annual_general_meeting_2018.pdf
2) 3) 4) Regarding the bonus issue and PNB & ASB's selling exercise.
Well, bonus issue is a normal practice in the share market. (Its essentially another form of share split so it doesn't really matter to me).
While for the PNB & ASB's selling exercise, there could be a lot of reasons. If we as a investor can sell our shares to restructure our portfolio, why PNB & ASB among the largest investment vehicles can't do so? They might just need that money for some other investments. Of course, these are our speculations and we'll never know the answer so I will just skip this.
5) 6) The HORRENDOUS Management Expenses
So, Calvin Tan discovered the management is taking RM315 millions home as compared to Sapura's boss who only took RM70m.
To be honest, I found this is kind of funny because it seems like Calvin Tan might have mistakenly took Management Expenses as Management Salaries, which are two different things. So, if you look at Note 9 in Notes to Financial Statements, you will find that management expenses include things like salaries and wages, pension costs, audit & professional fees, office expenses etc. The figures are as below and they are more or less 10% of the company's revenue so its quite reasonable to me.
2017 Management Expenses RM252million
2018 Management Expenses RM237million
2019 Management Expenses RM247million
SO! WHERE IS THE MANAGEMENT/DIRECTORS SALARIES?!
Well, if you just scroll down to section b of Note 31. Related Party Disclosures (Note 33 for 2019), you will find something called "The key management personnel compensations" which include the remunerations of executive / non-executives and key managements. Let me save you some time and show you the figures.
2017 key management personnel compensations RM23.4 million
2018 key management personnel compensations RM25.1 million
2019 key management personnel compensations RM25.7 million
So clearly, the salaries of management isn't the RM315million as claimed by Calvin Tan but the figures as shown above.
7) HUGE AMOUNT of loans & receivables.
MNRB is in the business of insurance. So, let me show you the accounting of insurance business.
Let's say a customer entered into a 20-year life insurance agreement with MNRB. So, MNRB will recognise the whole contract as their revenue. BUT, only 1 year is applicable as the other 19 years were not due and received by the company. So, what does the company do? It's simple and easy, they classified it as insurance receivables which is under the " loans & receivables". This is equivalent to the practice of banks where they have loan as assets.
So, this is why they can't classify it as bad debt as claimed by Calvin Tan. They can only put it under bad debts if the customer do not pay their insurance premiums.
8) Operating revenue is falling
Well, if you actually read the annual report of MNRB. You will find that MNRB suffered heavy losses in FY2016 and it is their first net loss of the year since 1998 Asian Financial Crisis. MNRB realised that they have expanded too quickly and undertook insurance contracts that are too risky.
So, in January 2017, MNRB has started a T20 Transformation Programme to terminate the risky and unprofitable insurance business from its international portfolio step by step. (You can find this in AR2017,2018 & 2019). The company hopes that this will be done by year 2020 and hence the name "T20". This is why we saw MNRB has a drop in revenue starting then and maintain its revenue at the same level (RM560m) for 5 straight quarters from Q1/2019 to Q1/2020. And by Q2/2020, the company has delivered its promise to restructure its revenue profit and there we saw its revenue increased to RM650m as compared to previous quarters. This is definitely a positive sign to me.
9) 10)
Calvin Tan said ASB as the pilot of the plane is going to dispose their remaining 40% shares. Well, as far as I know, ASB has increased their shareholdings to 44.10% while PNB has 12.80% as at January 2020. It seems like the pilot remained, don't you think so?
Well, these are the mistakes that I would like to point out in order to provide the readers in i3 forum with a clearer view. And one thing that I realised is sometimes we let our emotions override us in our research process and affected our judgment. This is understandable because we are all humans but we must learn also from our mistakes not to repeat.
Lastly, I wish everyone a Happy Chinese New Year.
https://klse.i3investor.com/blogs/AnDavis/2020-01-20-story-h1482869989-Response_to_MNRB_Top_10_Dangers_You_Must_Know_About_MNRB.jsp
