KSK: Expect a healthy dividedn distribution following the completed divestment of its primary insurance unit for rm1.63 billion on Sept 26, 2012 to AMG Insurance Bhd.KSK expected net cash level of rm990 million or 65.98 sen per KSK share following the divestment of Kurnia Insurans and the repayment of group borrowings of rm360 million. However it is worth nothing that besides the net cash of about rm990 million, the value of KSK’s remaining insurance ventures in Indonesia and Thailand is not reflected in its current market cap of slightly more than rm1 billion as these centers continue to be loss making.
KSK has confirmed its intention to distribute dividends, but there has been no mention of the quantum yet. Any distribution will be made after the group puts aside a sizeable chunk for its ongoing expansion plans.
With the divestment of Kurnia Insurans, KSK retains its Insurance ventures in Indonesia and Thailandvia its wholly owned PT Kurnia Insurance Indonesia and a 25% stake in the newly monikered KSK Insurance Thailand. It plans to increase its stake in Thai venture to 75%.
KSK has allocated rm100 million from the sale proceeds of the Kurnia Insurancs sale to growing its businesses in Indonesiaand Thailandwhere it intends to become a significant player. Both ventures have been loss making for several years.
Both insurance markets were very fragmented with a lot of small players, and is going through a consolidation phase. From a merger or acquisition angle, now (Oct 2012) seems to be the perfect time to expand within these markets by acquiring small players as KSK is currently (Oct 2012) cash rich. But the ventures were not likely to be profitable for a number of years.
So market observers expect the group to acquire new businesses outside the insurance industry, a possibility that KSK has not ruled out.
KSK could also be taken private if such opportunities do not arise.
As it stands, the group is currently (Oct 2012) a PN17 company on Bursa Malaysiaas it has ceased operations following the disposal of Kurnia Insurans. KSK has a year to submit a regularization plan to SC.
Axiata: Do not expect cash calls by Axiata’s associates Idea Cellular Ltd from India’s proposed imposition of a one time fee for the existing 2G spectra. Expect their cash flows and balance sheets to be sufficient for funding any one time fee and auction for 2G spectrum. Idea should be able to take on more debt as their Ebitda ratios are still comfortable at 2.2 times for Idea.
An empowered group of ministers headed by India’s finance minister has recommended to the India Cabinet that telcos be charged a one time fee for their 2G spectra exceeding 4.4MHz in all circles. Details such as the timeline and pricing have not been ironed out. The Cabinet is scheduled to take up this issue on Oct 16, 2012.
The government, meanwhile has also decided to hold an auction for 1800MHz spectrum on Nov 12, 2012. The reserve price for nationwide coverage has been set at rm8.1 billion with annual 3% revenue sharing component.
Industry observers viewed such fee as a negative for Idea as ti will put pressure on their cash flows with Idea having to pay rm2.24 billion. As for the 2G auction, expect Idea to fork out 19.6 billion rupees and foresee intense bidding fro the seven circles for which it lost its licenses on Feb 12, 2012.
On a bright side, do not expect cash calls by Idea for both the one time fee and 2G auction as they should be able to fund time via internal cashflows.
MBM Res: Announced JV with Hino will utilize a new, dedicated license for Hino. Under the 2009 National Auto Policy review, holders of new licenses are allowed to manufacture any type of commercial vehicle. MBM Res’s old comprehensive license, parked under 70% owned Kinabalu Motor Assembly Sdn Bhd, will be better utilized for the manufacture of passenger cars. This is where its value lies – new licenses only allow the manufacture of less than 1.8 litre passenger cars, priced at less than rm150000.
More importantly should not underestimate the spillover benefits on MBM’s parts manufacturing businesses in providing localization for Hino.
Market observers are bullish on MBM res for its strategic move up the value chain, which may involve new franchise wins and assembly rights, particularly in the high volume passenger car segment. Such announcements within the next six months from Oct 2012 should serve as strong share price catalysts.
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