Stock Name: ALLIANZ
Company Name: ALLIANZ MALAYSIA BHD
Insurance
Maintain neutral: On June 20, MAA Holdings Bhd (MAAH) announced that MAAH and its subsidiary MAA Corp Sdn Bhd have entered into a conditional sale and purchase agreement with Zurich Insurance for the disposal of 100% equity interest in Malaysian Assurance Alliance Bhd (MAAB), Multioto Services Sdn Bhd, Malaysian Alliance Property Services Sdn Bhd (MAPS) and Maagnet Systems Sdn Bhd, for a total cash consideration of RM344 million.
Previously, Business Times had reported that Zurich Insurance was willing to pay RM1.2 billion for 70% of MAAB, which translates into an extremely high price-to-book value (P/BV) of 6.78 times.
Given the lower than expected selling price for MAAB, MAAH's share price dipped by 29.6% yesterday, from RM1.03 to 72.5 sen, the lowest level in three months.
Taking into account the unaudited net assets of the group's subsidiaries as at Sept 30, 2010, the sales consideration of RM344 million was arrived at on a 'willing buyer willing seller' basis. The insurance business that resides in MAAB is therefore valued at 1.36 times P/BV, which is relatively lower than that transacted in recent mergers and acquisitions (M&A) in the Malaysian insurance industry.
Jerneh Asia Bhd and PacificMas Bhd disposed of their insurance arms, Jerneh Insurance and Pacific Insurance, at 2.25 times and 1.71 times P/BV. In another instance, Berjaya Corp sold off its 40% stake in Berjaya Sompo Insurance (B-Sompo) at 3.35 times, which set a new benchmark pricing in the general insurance space.
Compared with these recently completed M&A, MAAB is being sold at a significantly lower price.
MAAB's valuation is lower for a reason. There have been concerns over its asset quality, which as at December 2010 had non-performing loans (NPL) amounting to RM305 million, accounting for 3.5% of the company's total assets.
In addition, MAAB has yet to meet the minimum supervisory capital adequacy ratio (CAR) of 130% required under the risk-based capital framework (RBC). Based on MAAB's audited financial statements as at Dec 31, 2010, MAAH needs to pump roughly RM436 million into MAAB to satisfy this requirement.
To fulfil a generally accepted CAR of 180%, MAAH would need to inject some RM667 million into MAAB. We believe that MAAB's lower than peer valuation is the exception rather than the rule and should not be a point of reference for future M&A in the insurance industry.
Moreover, if we take the injection of RM436 million, which will fulfil the minimum RBC framework requirement, into account, MAAB is actually valued at 3.1 times P/BV instead of 1.36 times.
We believe there will be more moves for consolidation in the insurance sector, which may lead to a re-rating of the whole industry.
Our top pick, Allianz Malaysia Bhd ('buy', fair value: RM6.60), is appealing as the stock is trading at only 1.3 times P/BV, which is still lower than the unfavourable valuation for MAAB's disposal at 1.36 times P/BV, not to mention the actual 3.1 times P/BV required for MAAB to meet minimum requirements. The company is also poised to benefit from the high-growth takaful industry should the deal with Takaful Ikhlas Sdn Bhd go through.
We maintain 'neutral' on Kurnia Asia Bhd (FV: 42 sen) due to its patchy financial performance and 'take profit' on LPI Capital Bhd (FV: RM12.30) for the stock's lofty valuation. ' OSK Research, June 22
This article appeared in The Edge Financial Daily, June 23, 2011.
Company Name: ALLIANZ MALAYSIA BHD
| Research House: OSK | Price Call: BUY | Target Price: 6.60 |
Insurance
Maintain neutral: On June 20, MAA Holdings Bhd (MAAH) announced that MAAH and its subsidiary MAA Corp Sdn Bhd have entered into a conditional sale and purchase agreement with Zurich Insurance for the disposal of 100% equity interest in Malaysian Assurance Alliance Bhd (MAAB), Multioto Services Sdn Bhd, Malaysian Alliance Property Services Sdn Bhd (MAPS) and Maagnet Systems Sdn Bhd, for a total cash consideration of RM344 million.
Previously, Business Times had reported that Zurich Insurance was willing to pay RM1.2 billion for 70% of MAAB, which translates into an extremely high price-to-book value (P/BV) of 6.78 times.
Given the lower than expected selling price for MAAB, MAAH's share price dipped by 29.6% yesterday, from RM1.03 to 72.5 sen, the lowest level in three months.
Taking into account the unaudited net assets of the group's subsidiaries as at Sept 30, 2010, the sales consideration of RM344 million was arrived at on a 'willing buyer willing seller' basis. The insurance business that resides in MAAB is therefore valued at 1.36 times P/BV, which is relatively lower than that transacted in recent mergers and acquisitions (M&A) in the Malaysian insurance industry.
Jerneh Asia Bhd and PacificMas Bhd disposed of their insurance arms, Jerneh Insurance and Pacific Insurance, at 2.25 times and 1.71 times P/BV. In another instance, Berjaya Corp sold off its 40% stake in Berjaya Sompo Insurance (B-Sompo) at 3.35 times, which set a new benchmark pricing in the general insurance space.
Compared with these recently completed M&A, MAAB is being sold at a significantly lower price.
MAAB's valuation is lower for a reason. There have been concerns over its asset quality, which as at December 2010 had non-performing loans (NPL) amounting to RM305 million, accounting for 3.5% of the company's total assets.
In addition, MAAB has yet to meet the minimum supervisory capital adequacy ratio (CAR) of 130% required under the risk-based capital framework (RBC). Based on MAAB's audited financial statements as at Dec 31, 2010, MAAH needs to pump roughly RM436 million into MAAB to satisfy this requirement.
To fulfil a generally accepted CAR of 180%, MAAH would need to inject some RM667 million into MAAB. We believe that MAAB's lower than peer valuation is the exception rather than the rule and should not be a point of reference for future M&A in the insurance industry.
Moreover, if we take the injection of RM436 million, which will fulfil the minimum RBC framework requirement, into account, MAAB is actually valued at 3.1 times P/BV instead of 1.36 times.
We believe there will be more moves for consolidation in the insurance sector, which may lead to a re-rating of the whole industry.
Our top pick, Allianz Malaysia Bhd ('buy', fair value: RM6.60), is appealing as the stock is trading at only 1.3 times P/BV, which is still lower than the unfavourable valuation for MAAB's disposal at 1.36 times P/BV, not to mention the actual 3.1 times P/BV required for MAAB to meet minimum requirements. The company is also poised to benefit from the high-growth takaful industry should the deal with Takaful Ikhlas Sdn Bhd go through.
We maintain 'neutral' on Kurnia Asia Bhd (FV: 42 sen) due to its patchy financial performance and 'take profit' on LPI Capital Bhd (FV: RM12.30) for the stock's lofty valuation. ' OSK Research, June 22
This article appeared in The Edge Financial Daily, June 23, 2011.
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