THE BUZZ
Kurnia Asia Bhd (KAB)
announced on Bursa Malaysia yesterday that it has received Bank Negara Malaysia
(BNM) approval to sell its wholly-owned subsidiary, Kurnia Insurans
(Malaysia) Bhd (KIMB), to AmG Insurance Bhd (AmG).
OUR TAKE
Way paved for AmG to
expand insurance business. If the negotiations
on the sale work out, the deal will allow AmAssurance Bhd to leverage on the expertise of its business partner Insurance Australia
Group Limited (IAG), which owns 49% of AmG, to grow its general insurance business in Malaysia. While
details on the acquisition will only be announced after the signing of the definite agreement, we are maintaining
our view that the sale would be fully paid in cash at 2.0x PBV.
More about IAG. IAG has a portfolio of general insurance
businesses with leading brands across
its home markets of Australia and
New Zealand and other specialist underwriting
operations. With a presence in Asia that it intends to expand, the group is focusing
on accelerating its expansion to ensure that its Asian division delivers 10% of
gross written premiums by 2016. Having IAG on board has been positive for AmG
as it gave the company access to the former’s
direct regional expertise, as
exemplified by IAG’s innovative online general insurance portal launched in
Australia – Buzz Insurance – which won the ‘Australian Business Award for
Innovation’ in 2010.
2.0x PBV valuation
fair. From recent
M&As in the insurance industry,
we noted the following: i) MAA Holdings
sold its insurance business for 1.36x PBV, ii) PacificMas Bhd sold its
insurance business for 1.71x PBV, iii) Jerneh Asia sold its insurance business
for 2.25x PBV, while iv) Berjaya Corp hived off its 40% stake in Berjaya Sompo
Insurance at 3.35x PBV. Benchmarking the deal to our findings, we deem the 2.0x
PBV fair. Based on KIMB’s latest book value of RM757.5m as at end-June 2011,
the potential cash to be raised from the disposal based on 2.0x PBV will amount to RM1.51bn. After the sale, KAB’s book value will increase to
RM1.15bn after paying off debts of RM360m, translating into an equivalent book
value per share of RM0.77.
What’s next for KAB? After selling off KIMB, KAB will be left with
its insurance business in Indonesia via PT Kurnia Insurance Indonesia and
Thailand via Kurnia Insurance Thailand Ltd. Given the company’s cash pile of
RM1.15bn after the sale, we do not discount the possibility of it making a
capital repayment to its shareholders, although we think that the group
would keep some of its cash proceeds to
expand its businesses in Indonesia and Thailand.
Maintain TRADING BUY,
lifting FV. Assuming that the deal will be completed at 2.0x PBV, we
are retaining our TRADING BUY recommendation
on KAB. Incorporating KIMB’s latest book value into our calculation, our fair
value (FV) for KAB is increased from RM0.68 to RM0.77. Our valuations are based
on the latest book value disclosed by KIMB as at end-Jun 2011. Should the deal
be completed, we believe that the valuation will be based on KIMB’s book value
as at end-Dec 2011. Hence we think that there is still some potential upside to
our valuation, premised on a higher book value for KIMB.
Source: OSK188
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