MNRB : Bleak outlook due to rising claims ratio

Underperform (down from MP)

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- Given the RM22.2m net loss made in 1QFY03/10 as well as potential unfavourable claims experience in 2QFY10, we do not expect MNRB’s 1HFY10 earnings to turn around.

- We believe claims ratio for Malaysian Re will be higher vs. 1QFY10 of 64%, due to loss of commercial properties claims arising from series of natural disasters in ASEAN countries in Jul-Sep period. Thus, we have increased our claims ratio assumptions accordingly to 68% (ex-IBNR) for FY10-12 from 64% previously and cut our dividend projections to 4-10sen (from 13-15sen) for FY10-12 which translate into dividend yield of 1.2-3.1% from 4-4.6% previously.

- Downgrade to Underperform, from market perform previously. Fair value has been cut to RM2.94 based on 0.7x FY03/09 NTA from 0.8x previously, to reflect the bleak outlook ahead and lower dividend yield.