KURASIA (FV RM0.82-TRADING BUY) Corporate News Flash: KIMB Sold!

THE BUZZ

Kurnia Asia Bhd (KAB) announced on Bursa Malaysia yesterday that following  Bank Negara Malaysia (BNM) approval for its sale of wholly-owned subsidiary Kurnia Insurans (Malaysia) Bhd (KIMB) to AmG Insurance Bhd (AmG), the company has entered into a conditional sale and purchase agreement with AmG to proceed with the sale.

OUR TAKE

Spot-on with our expectations.  The valuation for KIMB was spot-on with our expectations as AmG agreed to purchase KIMB for RM1.55bn cash, which translates into 2.05x P/BV based on KIMB’s book value of RM756.5m as at 30 June 2011. We note that the sale consideration of RM1.55bn  will  be subject to  a  comparison between the ‘completion net asset value’ (book value of  RM778.7m as at 31 Dec 2011) and the ‘benchmark net asset value’ (RM756.5m book value at 30 June 2011). Hence, assuming KIMB’s valuation  is completed based on its  latest  book value as at 31 Dec 2011, the purchase consideration will be adjusted upwards to RM 1.59bn, at 2.05x P/BV. Incorporating this book value into our valuations would bump up our Fair Value for the stock from RM0.77 to RM0.82.

Valuations deemed  fair. As we mentioned in our previous report, we think that  a 2.0x P/BV is fair if we benchmark the sale to recent transactions in the insurance industry. These were: (i) MAA Holdings sold its insurance business for 1.36x P/BV, (ii) PacificMas Bhd sold its insurance business for 1.71x P/BV,  (iii) Jerneh Asia  disposed of  its insurance business for 2.25x P/BV,  and (iv) Berjaya Corp hived off its 40% stake in Berjaya Sompo Insurance at 3.35x P/BV.

Exploring dividend distribution. We gather from management that shareholders can expect a dividend distribution but added that it is also actively exploring other potential businesses to invest in, in addition to growing its existing general insurance businesses in Indonesia and Thailand organically or via other growth strategies.

Discontinuing coverage. With  KIMB now sold off,  we are discontinuing coverage on Kurnia Asia on reallocation of our resources.

Source: OSK188