KUALA LUMPUR: CIMB Equities Research estimates AMMB Holdings Bhd
would book in a one-off divestment gain of RM644.6mil from the sale of AmGeneral Insurance (AI).
The research house said on Wednesday the divestment gain from the sale based on the assumed selling price of RM3.3bil, assumed tax rate of 24%, and AI’s shareholders’ fund of RM1.64bn at end-Sep 18.
“We also assume that the value of AI in AMMB’s book is equivalent to AMMB’s 51% share of AI’s shareholders’ funds. The divestment gain could push up AMMB’s FY20F net profit by 45.4%, if the sale materialises,” it said.
To recap, Bloomberg reported that Allianz Malaysia
and Mitsui Sumitomo Insurance were shortlisted to proceed to the next round of bidding for AI. It was stated that the deal could value AI at about US$800mil (RM3.3bil). AMMB owns 51% of AI, while Insurance Australia Group holds the remainder.
“We are surprised by the above as AI is one of AMMB’s key earnings contributors. Furthermore, there are synergies between AI and its other banking entities,” said the research house.
CIMB Research estimates AI contributed about 9.2% to AMMB’s net profit in FY18F. In this case, the sale of its stake in AI could trim AMMB’s FY20-21F net profit by 9%-10%.
AI’s shareholders’ funds stood at RM1.64bil as at end-September 2018. The quoted selling price of RM3.3bil translates into a price-to-book value (P/BV) of two times. This is reasonable as it is below the average P/BV of 2.3 times for the previous insurance M&As in Malaysia.
Despite the attractive dividend yield of 4.3% projected for FY19F, CIMB Research retained its Hold call on AMMB due to the upturn in credit cost cycle.
The possible divestment in AI would not alter our call as despite the potential one-off divestment gain, it will cut AI’s earnings contribution to AMMB.
“We prefer RHB Bank. Our FY19-21F EPS forecasts and DDM-based target price of RM4.10 are intact,” it said.