Affin Holdings (AHB MK/SELL/RM2.32/Target: RM1.70) Seeks Approval To Raise Insurance Stake
WHAT’S NEW
Affin Holdings is seeking to boost its current 34.51% stake in associate firm AXA Affin General Insurance Bhd (AAGI). The financial services provider told Bursa Malaysia that Bank Negara had stated it had no objection in principle for it to start negotiations with Felda Marketing Services Sdn Bhd, AXA Asia and subsequently with the minority shareholders to acquire additional shares in AAGI. The consent is subject to all parties concluding negotiations within six months from the date of the central bank’s letter (25 March). On concluding negotiations, it would be required to get the prior approval of Bank Negara before entering into any agreement to effect the proposal.
(Source: The Star)
COMMENT
Marginal lift to earnings. In contrary to many banks which are seeking to dispose off their non-core insurance business to help improve their CET1 ratios, Affin Group is looking to raise its stake in its insurance JV with AXA. We think this could be partially due to Affin’s relatively small earnings base and hence the need to reinforce it by raising its stake in its insurance associate. We estimate that for every 10ppt increase in its stake in AAGI, the group’s earnings would rise by 2% while CET1 ratio will decline by less than 5bps.
Maintain SELL and target price of RM1.70 (5.7% 2016F ROE, 0.40x 2016F P/B, implied FY16 PE: 7.2x). If 4Q15 ROE of 4.8% is maintained, there could be further downside risk to our depressed earnings forecast, which is currently 12% below consensus.
source: UOBKayHian – 28/03/2016
