Hong Leong insurance arms may fetch RM3.2b

PETALING JAYA: Maybank IB Research said the potential sale of Hong Leong Assurance (HLA) and Hong Leong MSIG Takaful (HLMT) could raise about RM3.2 billion for Hong Leong Financial Group (HLFG), said.

“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 RM3.2 billion, 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 SOP of RM17,” it said in its research note.
Last week, HLFG announced that it will commence negotiations for the possible sale of its 70% stake in HLA and 65% stake in HLMT. It did not disclose the potential buyers.
“What is positive about this move is that it will unlock the value of HLA, which is the fourth largest life insurer in Malaysia (after AIA, GE and Prudential), in terms of annualised new business premiums; and it will likely lead to a marginal improvement in the group’s CET1 ratio, for which we estimate to be about 10% currently,” said Maybank IB Research.
Its SOP values HLFG’s 70% stake in HLA at RM3.15 billion, that is 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 1x that is, at RM53 million. Based on such valuations, the potential cash raised would be RM3.2 billion or RM2.79 per share, which we think could potentially be distributed back to shareholders, if the sale goes through,” it added.
The sale, if it goes through, will not significantly affect the group’s earnings as the insurance division contributes less than 10% of group earnings.
After the disposal, HLFG would have a 64.4% stake in Hong Leong Bank, 30% stake in MSIG Insurance, 81.3% stake in Hong Leong Capital and 100% stake in Hong Leong Insurance (Asia).
“Maintaining two listed vehicles namely HLFG and Hong Leong Bank may be less relevant thereafter,” said Maybank IB Research.