KURASIA (FV RM0.68 - TRADING BUY) FY11 Results Review: Right On Track

Kurnia’s  FY11 gross premium and net profit came in below our expectations accounting for 90.3% and 89.3% of our estimates respectively attributed to the RM9.95m share of losses incurred by KIMB from Malaysia Motor Insurance Pool (MMIP). Net profit surged 224.0% y-o-y, largely due to stable gross premium growth and lower claims ratio. Maintain TRADING BUY, with a fair value of RM0.68, based on the possible sale of Kurnia Insurans (KIMB).

In line if not for MMIP. Kurnia’s FY11 gross premium and net profit came in below our expectations accounting for 90.3% and 89.3% of our estimates respectively attributed to the RM9.95m share of losses incurred by KIMB from Malaysia Motor Insurance Pool (MMIP). Nonetheless, net profit surged by 61.6% q-o-q and 224.0% y-o-y, largely due to stronger gross premium written (+4.8% y-o-y), lower claims ratio and lower management expenses.  4Q11’s net investment income surged by 89.4% q-o-q due to better market conditions in the 4Q. Overall investment income yield for the year stood at 5.76%. No dividends were declared for FY11 as the group is committed to maintain its capital adequacy ratio above Bank Negara’s (BNM) requirement of 130%.

Lower management expenses.  Management expenses ratio reduced by 1.8% y-o-y from 16.5% in FY10 to 14.7% in FY11 as a result of better cost management (lower personnel cost and absence of non-recurring professional fees). The group’s commission ratio also improved from 9.5% in FY10 to 7.7% in FY11. We believe that the group will be able to further improve its management expenses ratio going forward.

Positive growth expected moving forward. We expect the group to remain profitable moving forward as the group’s commitment to manage its motor portfolio has been successful and they will also benefit from the revision in motor tariff premium rates. However, we anticipate that MMIP’s business will continue to be in losses in the next year or two and hence we are lowering our FY12 earnings estimate by 12.4% to account for the losses from MMIP which we estimate to be around RM2m per quarter and lower investment income due to a feeble 2012.

Sale of KIMB still pending BNM’s approval. We gather that the sale of KIMB which is still pending Bank Negara (BNM)’s approval will most likely materialize. Should KIMB be sold, we do not rule out a possible capital repayment to reward its shareholders.

Maintain TRADING BUY. We maintain our Trading Buy call on Kurnia, with a fair value of RM0.68 attributing it to the potential book value after the potential sale of KIMB.

Source: OSK188