Maybank IB positive on HLFG’s potential disposal

KUALA LUMPUR: Hong Leong Financial Group’s (HLFG) potential sale of its 70% stake in Hong Leong Assurance (HLA) and 65% stake in Hong Leong MSIG Takaful (HLMT) is expected to unlock its valuation.

“We estimate the potential sale of HLA and HLMT is a positive in that it would unlock the valuations of Malaysia’s fourth largest life insurer. The disposals could raise about RM3.2bil, which translates to RM2.79 per share, which we think could potentially be distributed back to shareholders.

“We are positive on the stock and maintain our ‘buy’ and sum of parts (SOP) of RM17,” Maybank Investment Bank said in a report.

HLFG announces that it will commence negotiations for the possible sale of its stakes in HLA and HLMT. The buyers are not specified.

Maybank said the move would unlock the value of HLA, which is the fourth largest life insurer in Malaysia after AIA, Great Eastern and Prudential, in terms of annualised new business premiums. It added that the move would likely lead to a marginal improvement in the group’s common equity Tier-1 (CET1) ratio.

“Our SOP values HLFG’s 70% stake in HLA at RM3.15bil, ie at a trailing  price-to-book value (PBV) of 3.2 times, in line with the PBV paid by Sun Life for CIMB Aviva. We have conservatively valued HLMT at a trailing PBV of one time i.e at RM53mil.

“Based on such valuations, the potential cash raised would be RM3.2bil or RM2.79 per share, which we think could potentially be distributed back to shareholders, if the sale goes through,” Maybank said.

The research house said the insurance division currently contributes less than 10% of group earnings so there would not be a significant impact to earnings post disposal.

What HLFG would have left in its stable would be a 64.4% stake in HL Bank, 30% stake in MSIG Insurance, an 81.3% stake in HL Capital and a 100% stake in HL Insurance  (Asia).

Maybank said maintaining two listed vehicles - HLFG and HL Bank may be less relevant thereafter.