Fair value for Kurnia at 55 sen, based on an unchanged FY12 target PER of 10x.
- The media reported that Kurnia is looking to dispose of its insurance arm, Kurnia Insurance (M) (KIMB). The news article in The Edge Weekly, mentioned that there are already “several bidders” for the stake.
- Although a potential stake sale could be a possibility, we highlight that a potential M&A for Kurnia would still require BNM approval even before any negotiations can take place.
- Assuming there is a sale of KIMB, we believe that valuations should range around 1.7-2.3x P/BV, as recent M&A’s in the general insurance segment (Jerneh, Pacific Insurance) suggest.
- Given the range of valuations for general insurance M&A’s, we believe investors should be cautious, as KIMB could be sold at the lower end of the spectrum, given its large exposure to motor policies which account for ~80% of total gross premiums thus implying a larger amount of risk.
- We maintain our fair value for Kurnia at 55 sen, based on an unchanged FY12 target PER of 10x. Assuming there is an offer to buy KIMB, we believe it should be at least 2.0x P/BV, as any less would cap Kurnia’s fair value at 55-56 sen. We thus maintain our Market Perform call on the stock
by RHB Equity
