AmBank Group (Dec 20, RM5.70)
Maintain neutral with target price RM6.26: We do not view AMMB’s proposed acquisition of Kurnia Insurans (M) Bhd as a re-rating catalyst as it is unlikely to boost its earnings in the near term. Based on our estimate, the deal is expected to be largely earnings neutral for AMMB.
Given AMMB’s keen interest in expanding its insurance business, we are not surprised by its proposal to acquire Kurnia. We continue to value AMMB at a 10% discount to its discounted dividend model (DDM) value and rate the stock a “neutral”. We prefer Malayan Banking Bhd.
AmG Insurance, AMMB’s 51%-owned general insurance unit, has submitted an application to Bank Negara to enter into an agreement to acquire 100% of Kurnia Insurans from Kurnia Asia. No details on the pricing were given by the company but it was reported that Kurnia is likely to sell at 2.5 to three times book value, valuing it at RM1.8 billion to RM2.2 billion.
Kurnia is one of the major general insurers in Malaysia, with total gross premiums of RM814.6 million in 9MFY11. It recorded a net profit of RM36.8 million in the nine-month period.
AmG will emerge as the second largest general insurer in Malaysia following the acquisition of Kurnia. It was the fifth largest in 2010. However, this will have minimal impact on earnings in the near term.
We estimate the impact on the bottom line to be between -RM4 million and +RM3 million (or 0.2% of FY13 net profit) based on the assumptions of: (i) a purchase consideration of RM1.8 billion to RM2.2 billion; (ii) financing cost of 5%; and (iii) an FY12 net profit of RM73.7 million for Kurnia based on consensus estimates.
However, this is in line with its plan to increase exposure to motor insurance. The reported valuation range of 2.5 to three times price-to-book value is on the high side compared with previous transactions — 1.6 times for Pacific Insurance Bhd and 2.2 times for Jerneh Insurance Bhd.
We do not advise investors to buy AMMB given the poorer prospects for the investment banking business and loan growth, which overwhelm the benefits from the continuous group revamp. Also, the proposed acquisition of Kurnia will not act as a catalyst in the near term. — CIMB Research, Dec 20
This article appeared in The Edge Financial Daily, December 21, 2011.
Maintain neutral with target price RM6.26: We do not view AMMB’s proposed acquisition of Kurnia Insurans (M) Bhd as a re-rating catalyst as it is unlikely to boost its earnings in the near term. Based on our estimate, the deal is expected to be largely earnings neutral for AMMB.
Given AMMB’s keen interest in expanding its insurance business, we are not surprised by its proposal to acquire Kurnia. We continue to value AMMB at a 10% discount to its discounted dividend model (DDM) value and rate the stock a “neutral”. We prefer Malayan Banking Bhd.
AmG Insurance, AMMB’s 51%-owned general insurance unit, has submitted an application to Bank Negara to enter into an agreement to acquire 100% of Kurnia Insurans from Kurnia Asia. No details on the pricing were given by the company but it was reported that Kurnia is likely to sell at 2.5 to three times book value, valuing it at RM1.8 billion to RM2.2 billion.
Kurnia is one of the major general insurers in Malaysia, with total gross premiums of RM814.6 million in 9MFY11. It recorded a net profit of RM36.8 million in the nine-month period.
AmG will emerge as the second largest general insurer in Malaysia following the acquisition of Kurnia. It was the fifth largest in 2010. However, this will have minimal impact on earnings in the near term.
We estimate the impact on the bottom line to be between -RM4 million and +RM3 million (or 0.2% of FY13 net profit) based on the assumptions of: (i) a purchase consideration of RM1.8 billion to RM2.2 billion; (ii) financing cost of 5%; and (iii) an FY12 net profit of RM73.7 million for Kurnia based on consensus estimates.
However, this is in line with its plan to increase exposure to motor insurance. The reported valuation range of 2.5 to three times price-to-book value is on the high side compared with previous transactions — 1.6 times for Pacific Insurance Bhd and 2.2 times for Jerneh Insurance Bhd.
We do not advise investors to buy AMMB given the poorer prospects for the investment banking business and loan growth, which overwhelm the benefits from the continuous group revamp. Also, the proposed acquisition of Kurnia will not act as a catalyst in the near term. — CIMB Research, Dec 20
This article appeared in The Edge Financial Daily, December 21, 2011.
