SOON-to-be-listed Kurnia Asia Bhd expects to achieve premium growth of around 14.3% for financial years 2005 and 2006 and 13.1% for 2007, OSK Research said.
In a research note, the research house said Kurnia's earnings growth was expected to be 16% in 2006 and 14% in 2007, after rebounding strongly by almost 200% in 2005, assuming a double-digit premium growth and claims ratio of 60%.
OSK Research has a positive outlook on Kurnia but said it was not overly bullish'' in its valuation of the stock.
It said it was applying a price earnings ratio (PER) of 10 times the group's calendar year 2005 earnings per share of 11.5 sen compared with the eight times PER utilised to value the general insurance businesses of MAA Holdings Bhd and MNI Holdings.
This, it said, was due to the stock's size premium and strong track record of profitability.
The research house has therefore put a fair value of RM1.15 to RM1.24 on Kurnia and foresees an upside of 15% to 24% for the stock.
The analyst said the company's gross dividend per share (GDPS) was projected at 6.9 sen for financial year ending 2006 and about 7.9 sen for 2007, translating into a dividend yield of 6.9% and 7.9% respectively if the payout ratio was fixed at 40%.
The management has given the guideline that they intend to pay out 40% to 60% of their earnings as dividend, he said, adding that based on the company's projected GDPS of 5.6 sen for financial year ending 2005, the dividend payout ratio would be 37.4%.
OSK Research said Kurnia, which planned to grow its non-motor segment, was expected to focus on the medical segment with the recent launch of two medical insurance products, MediGuard and MediGuard Express.
At the same time, it added, the country's largest general insurance company was anticipated to enlarge its share in the motor segment to 30% from the present 22.5% by 2010. Currently, the company has a 13.4% share of the general insurance segment.
The research house added that Kurnia was also in the best position to benefit from any potential tariff hike as more than 93% of its portfolio was in the motor business. Based on the estimates by the management, a 1% increase in the motor tariff would enhance Kurnia's net profit by RM6mil to RM7mil, an almost 4% rise in earnings.
On Kurnia's risk factors, it said the company would be most affected in the event of a slowdown in car sales or a hike in the claims ratio for auto insurance in view of its lack of diversification.
Kurnia also faces the risk of increased competition from bank-backed insurers, which are beefing up their insurance business,and a possible hike in claims ratio, it added.
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