MAYBANK (1155) : Malayan Banking Bhd - Plans to list its insurance arm?
Target RM12.50 (Stock Rating: ADD)
The Edge Weekly stated that Maybank is considering listing its insurance unit under Etiqa. We are surprised by this news, as Maybank’s management has not provided any guidance on such an intention. This exercise, if materialises, would be positive for Maybak in the short term as it could add an intrinsic value of about 6% to Maybank’s market capitalisation. Any reduction of its stake in Etiqa following the listing would lead to one-off gains but will reduce Etiqa’s earnings contributions to Maybank in the longer term. Our DDM-based target price (COE of 9.7%; LT growth of 4%) is intact. Maybank is an Add and our top pick for the sector, due to 1) recovery of its business in Indonesia, and 2) the benefits from the regionalisation of its operations.
What Happened
A source quoted by The Edge Weekly stated that Maybank is looking into listing its insurance and takaful arm under Etiqa.
What We Think
The above news came as a surprise to us because Maybank has not provided any guidance on its intention to list the insurance company. Moreover, it would exercise greater control on Etiqa by keeping the insurance unit private. The exercise would be positive for Maybank in the short term, as it increases the value of its stake in Etiqa by an estimated RM4.9bn or about 6% of its total market capitalisation. If Maybank divests its Etiqa stake, it would book one-off gains for the exercise but this would reduce Etiqa’s earnings contributions to Maybank in the longer term. Given its size and diversified business portfolio, we think that the valuation of Etiqa would be on par with the 2.4x P/BV commanded by LPI Capital. Applying this to Etiqa’s end-Sep 2014 book value, the company would have an estimated market capitalisation of RM12bn upon listing. Based on this assumption, we estimate that every 1% divestment by Maybank of its stake in Etiqa would lead to a one-off gain of RM71m (or 0.9% of Maybank’s FY16 net profit) but would reduce Maybank’s FY17 net profit by 0.1%.
What You Should Do
Stay invested in Maybank to capitalise on its regional network, which would benefit from the increasing trade in the Asean region. The potential near-term catalysts are the recovery of the Indonesian operating environment and the market share gains by its investment banking business. As for the insurance business, we see Maybank’s drive to expand its insurance business regionally as a catalyst, but not the potential listing of its insurance unit in Malaysia.
Source: CIMB Daybreak - 08 December 2014
Target RM12.50 (Stock Rating: ADD)
The Edge Weekly stated that Maybank is considering listing its insurance unit under Etiqa. We are surprised by this news, as Maybank’s management has not provided any guidance on such an intention. This exercise, if materialises, would be positive for Maybak in the short term as it could add an intrinsic value of about 6% to Maybank’s market capitalisation. Any reduction of its stake in Etiqa following the listing would lead to one-off gains but will reduce Etiqa’s earnings contributions to Maybank in the longer term. Our DDM-based target price (COE of 9.7%; LT growth of 4%) is intact. Maybank is an Add and our top pick for the sector, due to 1) recovery of its business in Indonesia, and 2) the benefits from the regionalisation of its operations.
What Happened
A source quoted by The Edge Weekly stated that Maybank is looking into listing its insurance and takaful arm under Etiqa.
What We Think
The above news came as a surprise to us because Maybank has not provided any guidance on its intention to list the insurance company. Moreover, it would exercise greater control on Etiqa by keeping the insurance unit private. The exercise would be positive for Maybank in the short term, as it increases the value of its stake in Etiqa by an estimated RM4.9bn or about 6% of its total market capitalisation. If Maybank divests its Etiqa stake, it would book one-off gains for the exercise but this would reduce Etiqa’s earnings contributions to Maybank in the longer term. Given its size and diversified business portfolio, we think that the valuation of Etiqa would be on par with the 2.4x P/BV commanded by LPI Capital. Applying this to Etiqa’s end-Sep 2014 book value, the company would have an estimated market capitalisation of RM12bn upon listing. Based on this assumption, we estimate that every 1% divestment by Maybank of its stake in Etiqa would lead to a one-off gain of RM71m (or 0.9% of Maybank’s FY16 net profit) but would reduce Maybank’s FY17 net profit by 0.1%.
What You Should Do
Stay invested in Maybank to capitalise on its regional network, which would benefit from the increasing trade in the Asean region. The potential near-term catalysts are the recovery of the Indonesian operating environment and the market share gains by its investment banking business. As for the insurance business, we see Maybank’s drive to expand its insurance business regionally as a catalyst, but not the potential listing of its insurance unit in Malaysia.
Source: CIMB Daybreak - 08 December 2014
