MNRB – bigger does not mean better

[i4value]

Bursa MNRB is a leading provider of reinsurance and retakaful as well as takaful. You would have thought that with a captive reinsurnance market and being a poineer in the takaful sector, it would be a roaring success.

While MNRB had been able to grow its revenue at 5.2% over the past decade, PAT only grew at about half the rate. When I compared MNRB's performance with those of the other Bursa insurance companies, I found that it is at best just below the panel average.

There was a run up in its share price a couple of months ago following a very good first quarter result. Unfortunately this was not sustained in the second quarter. So the company is still trading significantly below its book value.

MNRB's problems are more about poor operating fundamentals – profitability, underwriting performance, and investment. If these could be improved we will have fantastic performance. So maybe the market waiting for this to happen before any re-rating.

[weijian]

hi i4value, I quote parts of your post (in italics):

If you are already an investor, whether to hold or cut loss depends on your entry price. I belong to this category and I will show you why I am holding onto MNRB.

However, if you are like me which an existing investor in MNRB, the picture is different. As shown earlier, I had obtained a compounded annual return of 4.2 %. The bulk of the return was due to dividends. I think that it is not difficult to get some capital gain. This is especially true when I can see a long-term price uptrend as per Chart 1. I will continue to hold.

And I have a few comments:

(1) You have probably correctly identified MNRB as a value trap. While it is not clear to me why any sort of action is dependent on the "entry price", but it is very clear to me that you are trapped by the anchoring bias and mental accounting bias. All one needs to do, is to find another investment with higher (and durable) earnings yield than this value trap's 4.2% annualized return and then re-do the asset allocation. Based on the volume and quality of your analysis, it is a piece of cake doing the re-allocation. I have done half your work at half your quality and already more than enough candidates to replace MNRB.

(2) You have done wonderful fundamental analysis but everything is put to shame when your final decision is based on some trend reading (Chart 1).

P.S. My posts have been purposely constructed in a harsher manner, because that's the only way I think it does justice to the amount of stuff that I have learnt from your posts. I wouldn't have bothered otherwise.