Although Kurnia Asia Bhd is expected to sell its unit Kurnia Insurans (M) Bhd at a high book value, investors should be cautious because there could be a chance the insurance arm will be sold at a lower net cash per share value.
“Given the range of valuations for general insurance mergers and acquisitions, we believe investors should be cautious as Kurnia Insurans could be sold at the lower end of the spectrum.
“This is given its large exposure to motor policies, which account for about 80% of total gross premiums, thus implying a larger amount of risk,” it said.
The research house added that the insurance arm “still has about 14,000 outstanding third-party bodily injury and death claims, which could be a cause for a further discount in the offer price”.
However, Kurnia Asia is set to dispose of an equity stake in Kurnia Insurans, which reserves the possibility of the subsidiary being sold partially only.
An analyst said: “If this is the case, then the main concern would be who is buying, what is the equity interest and what valuation is given for that portion of stake.
“The question to ask then is what can Kurnia Asia do now, moving forward. Will they have a joint venture with a foreign company or move into other businesses?”
“Given the range of valuations for general insurance mergers and acquisitions, we believe investors should be cautious as Kurnia Insurans could be sold at the lower end of the spectrum.
“This is given its large exposure to motor policies, which account for about 80% of total gross premiums, thus implying a larger amount of risk,” it said.
The research house added that the insurance arm “still has about 14,000 outstanding third-party bodily injury and death claims, which could be a cause for a further discount in the offer price”.
However, Kurnia Asia is set to dispose of an equity stake in Kurnia Insurans, which reserves the possibility of the subsidiary being sold partially only.
An analyst said: “If this is the case, then the main concern would be who is buying, what is the equity interest and what valuation is given for that portion of stake.
“The question to ask then is what can Kurnia Asia do now, moving forward. Will they have a joint venture with a foreign company or move into other businesses?”
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