Tuesday, July 19, 2011

Kurasia ... Jul11

Sources say it is looking to dispose of its insurance business and has already attracted several interested parties. It is ranked among the top five players in the general insurances space.

There is little indication at what price Kurnia Insurans would hived off. But observers opine that the insurance arm could fetch a valuation of between 1.5 times and 2.5 times book value, which is the industry average.

The value of insurance companies has increased of late. Previously, general insurers rarely commanded a premium above 1.5 times book value. But the latest transactions show that deals can be done at more than three times book value such as Jerneh and Pacific.

As at end March 31, 2011, Kurasia’s net asset per share stood at 22.97 sen. Assuming the deal is done at two times book value, it will be about 46 sen.

Valuation for Kurasia’s insurance business should be within industry average. At the lower end, it would be 1.7 to 2 times book value. It will not be lower than MAA’s valuation. MAA sold its insurance its assets at 1.36 times book value.

It is understood that proceeds from the sale of Kurasia Insurans will be used to pare down Kurasia’s debt. Kurasia has borrowings of rm360 million. The company’s cash and cash equivalent stood at rm82.4 million as at March 31, 2011.

Its added advantage is that unlike other insurers, it has a regional reach with its operations in Thailand and Indonesia.

It saw a strong rebound in its 1QFy2011 ended March earnings. Net profit was rm14.5 million compared with a net loss of rm8.5 million in 4QFY2010 ended Dec 31, largely underpinned by lower claims ratio, and better cost control.

The results were mainly contributed by better underwriting results which improved from a loss of rm22.7 million to rm4.5 million.

Y-o-Y, Kurasia’s poor performance had been largely due to Kurasia Insurans portfolio, which heavily relies on motor insurance.

But over the past year, Kurasia has reduced its exposure on motor insurance. It has undertaken efforts to improve the non motor contribution in its business portfolio.

However, Kurasia could be in for better days given the hike in third party insurance premiums slated for Jan 2012. If Kurasia can hold their claims ratio well, then the hike in premiums would go to its bottom line.

Nevertheless, market observers remain cautious about its outlook in the near term, owing to its patchy financial performance over the last few years.

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