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Corporate Highlights RHB Research Institute Sdn Bhd A member of the RHB Banking Group Company
Corporate Highlights
RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M
News Update
9 August 2010
Kurnia Asia
Share Price
:
RM0.505
Fair Value
:
RM0.63
Proposed Private Placement
Recom
:
Outperform
(Maintained)
Table 1 : Investment Statistics (KURASIA; Code: 5097)
Bloomberg: KUAB MK
Malaysia
MARKET DATELINE
PP 7767/09/2010(025354)
 

Net

Net

FYE

Turnover

profit

EPS

Growth

PER

C.EPS*

P/NTA

P/CF

ROE

Gearing

DY

Dec

(RMm)

(RMm)

(sen)

(%)

(x)

(sen)

(x)

(x)

(%)

(%)

(%)

2009(a)^

1,149.9

86.2

2.9

-23.7

23.3

-

3.3

18.8

28.7

1.0

0.0

2010(f)

1,134.2

99.1

6.6

129.8

7.6

8.0

1.9

6.2

24.8

0.9

0.0

2011(f)

1,185.4

104.4

7.0

5.3

7.2

8.0

1.5

5.8

20.7

0.7

2.8

2012(f)

1,244.2

116.7

7.8

11.8

6.5

-

1.2

5.3

18.8

0.5

3.1

Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC

^ Numbers are annualised, FY12/09 consists of 6 months period due to change in FYE from June to Dec

* Consensus Based On IBES Estimates

Proposes 10% private placement. Kurnia announced that it is planning to undertake a 10% private placement of its shares, which would increase its share capital to 1.65bn shares of RM0.25 each (from 1.5bn previously). The shares will be allocated to institutional investors who will be identified at a later date.

Pricing of the placement. Indicative price of the placement shares has yet to be determined. However, it is expected to be priced based on a discount of not more than 10% from the 5-day weighted average market price (WAMP) of Kurnia shares immediately preceding the yet to be determined price fixing date. Assuming an indicative issue price of RM0.52 per share, Kurnia’s placement is expected to raise proceeds of RM77.4m.

Utilisation of proceeds. RM40m of the proceeds from the placement will be used to repay Kurnia’s borrowings, while the balance (ex-RM1.65m for placement expenses) will be used for the working capital of Kurnia or for the strengthening of its Internal Capital Adequacy Ratio (ICAR). We understand that any deviation from the illustrated proceeds of RM77.4m will be adjusted against the amount allocated for working capital purposes as per Table 2.

Dilution to EPS. The proposed placement is not expected to have any dilutive effects on Kurnia’s FY10 net EPS. However, our forecast FY11 EPS will be diluted by approximately 9.1% to 6.3 sen, from 7.0 sen.

Risks: 1) Change in government policy that may result in lower car prices; 2) Jump in claims ratio; and 3) Total expense ratio may exceed 100%.

Forecasts. We are leaving our forecasts unchanged for the time being, pending the completion of the placement and Kurnia’s 2Q FY12/10 results.

Issued Capital (m shares) Market Cap (RMm)

1,500.0

757.5

Daily Trading Vol (m shs)

0.34

52wk Price Range (RM)

0.51 – 0.805

Major Shareholders:

(%)

Tan Sri Kua Sian Kooi

51.4

FYE Dec EPS chg (%)

FY10

FY11

FY12

-

-

-

Var to Cons (%)

(17.5) (12.5)

-

PE Band Chart

PER = 25x PER = 20x PER = 15x PER = 10x
PER = 25x
PER = 20x
PER = 15x
PER = 10x

Relative Performance To FBM KLCI

Kurnia Asia FBM KLCI
Kurnia Asia
FBM KLCI

Investment case. We believe the EPS dilution may not be well received by investors given the concerns over the delay in the Government’s decision on the motor de-tariff proposal. We are maintaining our fair value estimate at RM0.63 based on 9x FY12/11 EPS for now, but we will review our assumptions and our Outperform call after speaking with management.

Please read important disclosures at the end of this report.

Yap Huey Chiang (603) 92802641 yap.huey.chiang@rhb.com.my

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Table 2. Utilisation of proceeds

Table 2. Utilisation of proceeds

Indicative price* (RM)

0.50

0.52

0.54

Repayment of borrowings (RMm)

40.000

40.000

40.000

Working capital expenses (RMm)

32.771

35.748

38.725

Placement expenses (RMm)

1.650

1.650

1.650

Total (RMm)

74.421

77.398

80.375

*For illustration purpose

Source : Company and RHBRI estimates

Table 3: Earnings Forecasts

Table 4: Forecasts Assumptions

FYE Dec (RM m) Turnover Premium Investment Income* Others

FY 10F

FY 11F

FY 12F

FYE Dec (RM m) Premium growth Retention ratio NEP/GWP NEP/NWP Claims ratio Commission ratio Mgmt exp ratio Total ratio Invt return

FY 10F

FY 11F

FY 12F

1,134.2

1,185.4

1,244.2

8.0

5.0

5.0

1,023.7

1,074.9

1,128.6

89.0

89.0

89.0

100.5

100.5

105.5

94.8

95.2

95.2

10.0

10.0

10.0

106.5

107.0

107.0

 

67.0

67.0

66.5

Underwriting surplus

53.4

56.3

64.5

10.0

10.0

10.0

Investment income

100.5

100.5

105.5

17.5

17.5

17.5

Others

(20.9)

(24.3)

(21.1)

94.5

94.5

94.0

 

5.2

5.2

5.2

Pretax

133.0

132.5

148.9

Source: RHBRI estimates

 

Tax

(33.9)

(28.1)

(32.2)

Net

99.1

104.4

116.7

Source: Company, RHBRI estimates * for both general insurance subsidiary and holding company

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect.

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