DRB-Hicom, UOB to dispose of UAL stake

by **Cals** Mon 19 Aug 2013, 10:22

DRB-Hicom, UOB to dispose of UAL stake
Business & Markets 2013
Written by AmResearch
Monday, 19 August 2013 09:50
DRB-HICOM BHD []
(Aug 16, RM2.70)
Maintain buy at RM2.61 with a fair value of RM3.65: We maintain "buy" on DRB-Hicom, with a fair value of RM3.65 per share — a 15% discount to our sum-of-parts value of RM4.31 per share.

DRB-Hicom and United Overseas Bank (M) Bhd (UOB) have struck a deal with Prudential Financial, Inc of the US and Bank Simpanan Nasional (BSN) for the disposal of their entire interest in Uni.Asia Life Assurance Bhd (UAL) for RM518 million cash.

On Aug 15, DRB-Hicom announced that the potential buyer is a company that would be 70:30 owned by Prudential's unit, The Prudential Insurance Company of America, and BSN, respectively. Prudential Financial is listed on the New York Stock Exchange, with no affiliation to the UK's Prudential plc.

It was exactly a year ago to the day that DRB-Hicom announced that Bank Negara Malaysia (BNM) did not object in principle to the group initiating talks with certain interested parties over the sale of its stakes in Uni.Asia General Insurance Bhd (UAG) and UAL.

UAG is 68.1% owned and UAL 100% by Uni.Asia Capital Sdn Bhd (UAC) which is 51% owned by Gadek (M) Bhd, which in turn is fully owned by DRB-Hicom. UOB holds the balance 49% of UAC. Effectively, DRB-Hicom owns 34.73% of UAG and 51% of UAL.

DRB-Hicom's latest announcement was silent on its stake in UAG, which is the general insurance arm of its JV with UOB.

DRB-Hicom said UAC had on Aug 15 submitted an application to BNM to secure the approval of the minister of finance to review the proposal for it to enter into a sale and purchase agreement with the proposed purchaser.

The consideration represents about 2.2 times UAL's estimated and adjusted shareholders fund of RM233 million as at March 31, 2013. This would be in line with recent insurer transactions involving valuations of between 1.8 times and 2.4 times.

The price looks attractive given that UAL is one of the smaller life insurers in the country, though it does offer Prudential a foothold in the Malaysian market. Additionally, each of the recent deals had involved life and general insurance businesses of considerable sizes.

Separately, Prudential said if the deal is approved, UAL would sign a long-term bancassurance agreement with BSN to distribute its conventional life products via the latter's 397 branches and 3,593 registered banking agents.

[You must be registered and logged in to see this image.]

UAL also has a strategic distribution alliance with DRB-Hicom's associate POS MALAYSIA BHD [] for the distribution of life products via over 700 post offices. We believe this alliance will continue. — AmResearch, Aug 16

This article first appeared in The Edge Financial Daily, on August 19, 2013.