Pricing key in Kurnia unit sale

Analyst: Post-disposal special dividend possible
PETALING JAYA: Pricing would be a key consideration in the proposed sale of Kurnia Asia Bhd's general insurance arm Kurnia Insurans (M) Bhd (KIMB) to AmG Insurance Bhd, analysts said.
In separate filings with Bursa Malaysia on Monday, Kurnia and AMMB Holdings Bhd AmG's parent company with a 51% stake said they had submitted an application to Bank Negara for AMMB to potentially acquire a 100% equity interest in KIMB. No details were given on the pricing.
This confirms an earlier report by StarBiz which said that Kurnia was finalising a deal to sell KIMB to Insurance Australia Group (IAG), which owns 49% of AmG.
IAG, the largest general insurer in Australia and New Zealand, told Reuters that the proposed buyout of KIMB could make it the market leader of Malaysia's motor insurance segment.
To recap, Kurnia had in July obtained the greenlight from Bank Negara to begin talks with parties interested to acquire KIMB.
Maybank
Kim Eng analyst Desmond Ch'ng said in a research report that the deal
was still in its early days and much would depend on how negotiations
develop, and the pricing.
“Valuations paid for general insurance companies have been wide-ranging, 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.
Speculation
has it that KIMB could be sold for 2.5 to three times the book value of
the company, translating to a price tag of RM1.8bil to RM2.2bil, which
analysts have described as expensive.
Kurnia is one of the
leading general insurers in Malaysia with total gross premium of
RM814.6mil and net profit of RM36.7mil in the nine months to September.
KIMB
has a sizeable network of 30 branches and an agency force of over 5,500
nationwide, according to Maybank Kim Eng. However, it noted that KIMB's
portfolio was heavily skewed towards motor insurance, which accounts
for some 80% of total premiums.
While Kurnia has several options
for the money it could gain from the disposal of KIMB, an analyst said,
the management had previously stated its intention to remain a listed
entity, meaning that it would have to acquire a new core business.
Since
KIMB contributes about 99% of Kurnia's revenue, the latter would need a
new core business or risk falling into the Practice Note 17 category.
Kurnia also had insurance operations in Cambodia, Thailand and
Indonesia, but these were loss-making, the analyst said.
On the
prospect of a special dividend from Kurnia post-KIMB disposal, the
analyst said it was possible looking at the recent example of CI Holdings Bhd,
which distributed RM5.10 per share to shareholders via a RM4.60
dividend and reduction in the par value of every RM1 share to 50 sen,
after it sold its bottling subsidiary Permanis Sdn Bhd to Japan's Asahi Group Holdings Ltd for RM820mil.
Meanwhile, both Maybank Kim Eng and CIMB
Research pointed out that on AMMB's side, buying KIMB would have
minimal impact on its earnings in the near term. Maybank Kim Eng said
that assuming KIMB achieved a net profit of RM100mil in 2012, the net
addition to AMMB's earnings would come in at just 1%.
CIMB
analyst Winson Ng added that AmG could emerge as the second largest
general insurer in the country from fifth place in 2010 after acquiring
KIMB.
Trading in Kurnia shares began to surge two weeks ago, with
the stock touching 60.5 sen on Friday, its highest price since March
last year. It closed yesterday two sen lower to 58.5 sen on volume of
14.3 million shares.