Premium boost FOR AMMB
Buying Kurnia Insurans will make it the country’s largest general insurer
AMMB Holdings Bhd’s proposed acquisition of Kurnia Asia Bhd subsidiary Kurnia Insurans (M) Bhd could make it the country’s largest general insurer, analysts said.
PETALING JAYA: AMMB Holdings Bhd’s proposed acquisition of Kurnia Asia Bhd subsidiary Kurnia Insurans (M) Bhd could make it the country’s largest general insurer, analysts said.
Affin Investment Bank analyst Eileen Tan said in a note to clients that AMMB’S unit, AMG Insurance Bhd, would catapult into the No. 1 position from fifth place currently, based on a net written premium market share of 13.2%, ahead of Allianz Malaysia (11.7%) and MSIG (10.6%).
AMMB and Kurnia Asia had on Wednesday received Finance Ministry’s approval through Bank Negara to proceed with the plan to sell the latter’s wholly-owned unit Kurnia Insurans to AMG, which is AMMB’S 51%-owned general insurance unit.
The other 49% in AMG is held by Australia-listed Insurance Australia Group Ltd, the largest general insurer in Australia and New Zealand.
We do not discount the possibility of it (Kurnia Asia) making a capital repayment to its shareholders. — OSK RESEARCH
AMMB has anotherer Australian connection by way of its single largest shareholder, Australia and New Zealand Banking Group Ltd, with a 23.8% stake.
The application for the sale was submitted to Bank Negara in midDecember last year, after Kurnia Asia obtained the central bank’s nod in July to begin talks with parties interested in Kurnia Insurans.
However, details on the pricing, which analysts feel could be an issue, have yet to be released as both sides would first need to sign a definitive agreement.
OSK Research believes the sale would be fully paid for in cash at two times price-to-book value, translating to a price tag of Rm1.15bil based on Kurnia Insurans’ latest book value of Rm757.5mil as at end-june 2011.
The brokerage said in a note to clients that post-sale, Kurnia Asia’s book value would increase to Rm1.15bil after it paid off debts amounting to Rm360mil, leaving it with an equivalent book value of 77 sen per share.
“After selling off Kurnia Insurans, Kurnia Asia 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 Rm1.15bil 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,” it said.
Valuations for recent mergers and acquisitions in the insurance industry have ranged from 1.4 times for the sale of MAA Group Bhd’s insurance business to Zurich Insurance to 3.3 times for Berjaya Corp Bhd’s Berjaya Sompo Insurance.
Nonetheless, Alliance Research analyst Cheah King Yoong opined that the recent acquisition price range “may not serve as a good pricing benchmark for Kurnia Insurans” as it was a dominant player in the domestic general insurance market.
“On the other hand, the ongoing external uncertainties could cap Kurnia Asia’s bargaining power to dispose of its subsidiary at a higher price,” he said in a report.
Kurnia Asia’s current market value, he added, was around 15.5 times forward price-to-earnings and two times price-to-book value.
However, a source close to the matter said some fund managers were not sold on the potential of the deal as they were not impressed by Kurnia Insurans’ capital reserves.
This, he said, made the purchase look less compelling for AMMB.
AMMB was unchanged yesterday at RM6.32 with some 2.98 million shares done. Kurnia Asia lost 3.5 sen, or 5.5%, to 60 sen on much heavier volume of 16.07 million shares.