Stock Name: KURASIA
Company Name: KURNIA ASIA BHD
Company Name: KURNIA ASIA BHD
| Research House: OSK | Price Call: TRADING BUY | Target Price: 0.77 |
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 toexpand 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 AustraliaGroup Limited (IAG), which owns 49% of AmG, to grow its general insurance business in Malaysia. Whiledetails on the acquisition will only be announced after the signing of the definite agreement, we are maintainingour view that the sale would be fully paid in cash at 2.0x PBV.
More about IAG. IAG has a portfolio of general insurancebusinesses with leading brands across its home markets of Australia andNew Zealand and other specialist underwritingoperations. With a presence in Asia that it intends to expand, the group is focusingon accelerating its expansion to ensure that its Asian division delivers 10% ofgross written premiums by 2016. Having IAG on board has been positive for AmGas it gave the company access to the former's direct regional expertise, asexemplified by IAG's innovative online general insurance portal launched inAustralia ' Buzz Insurance ' which won the 'Australian Business Award forInnovation' in 2010.
2.0x PBV valuation fair. From recentM&As in the insurance industry,we noted the following: i) MAA Holdingssold its insurance business for 1.36x PBV, ii) PacificMas Bhd sold itsinsurance business for 1.71x PBV, iii) Jerneh Asia sold its insurance businessfor 2.25x PBV, while iv) Berjaya Corp hived off its 40% stake in Berjaya SompoInsurance at 3.35x PBV. Benchmarking the deal to our findings, we deem the 2.0xPBV 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 toRM1.15bn after paying off debts of RM360m, translating into an equivalent bookvalue per share of RM0.77.
What's next for KAB? After selling off KIMB, KAB will be left withits insurance business in Indonesia via PT Kurnia Insurance Indonesia andThailand via Kurnia Insurance Thailand Ltd. Given the company's cash pile ofRM1.15bn after the sale, we do not discount the possibility of it making a capital repayment to its shareholders, although we think that the groupwould keep some of its cash proceeds toexpand its businesses in Indonesia and Thailand.
Maintain TRADING BUY,lifting FV. Assuming that the deal will be completed at 2.0x PBV, weare retaining our TRADING BUY recommendationon KAB. Incorporating KIMB's latest book value into our calculation, our fairvalue (FV) for KAB is increased from RM0.68 to RM0.77. Our valuations are basedon the latest book value disclosed by KIMB as at end-Jun 2011. Should the dealbe completed, we believe that the valuation will be based on KIMB's book valueas at end-Dec 2011. Hence we think that there is still some potential upside toour valuation, premised on a higher book value for KIMB.
Source: OSK188
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