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Tokio Marine Eyes RHB’s Insurance Arm

Mohd Noordin
By Mohd Noordin
7 years ago
Tokio Marine Eyes RHB’s Insurance Arm

Mal


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  1. TA Securities COMPANY UPDATE Thursday , September 01, 2016 FBMKLCI: 1,678.06 A Member of the TA Group MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +60320325048 Sector: Finance RHB Bank Berhad TP: RM5.40 (+8.0%) Last traded: RM5.00 Tokio Marine Eyes RHB’s Insurance Arm HOLD THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* TA Research Team Coverage Tel: +603-2167 9610 liwong@ta.com.my RHB in exclusive talks with Tokio Marine Tokio Marine Holdings Inc is reported to be in exclusive talks to acquire RHB Bank's general insurance unit. According to the news report, the deal could also include an agreement to distribute the insurer's products through RHB Bank. The article further add that the sale is expected to value RHB’s general insurance arm at between 3.0-3.5x book value or c. RM2.0bn. Positive, should the deal materialise If successful, we believe the sale would augur well for RHB Bank – giving rise to potential gains from the sale and to help beef up RHB’s capital buffers. We are positive, should the deal materialise. Management could then focus on growing its core banking business yet tapping on Tokio Marine’s expertise in insurance to provide its customers with added life and general insurance products and services. The deal should be both earnings and ROE accretive for RHB, in our view. Asking price reasonable Based on historical M&A of general insurance businesses in Malaysia, the average valuation for general insurers is around 1.9x PBV. However, the ratio could be skewed by several deals in the past where general insurance units were sold at valuations as high as 3.3x (for the sale for Berjaya General Insurance to Sompo Japan in 2005) and 6.5x (for a stake in Hong Leong Assurance Berhad to Mitsui Sumitomo). While the life insurance business usually commands a better valuation premium, we also note that recent sale of AMMB’s life insurance and takaful units to MetLife was completed at c. 3.0x book. We believe an asking price of 3.0-3.5x PBV may be reasonable given Tokio Marine’s ability to tap on RHB entrenched regional network. Challenging market environment could dampen deal Uncertainties along with a challenging and competitive market environment for insurance players could be a dampener to the deal. With BNM gradually liberalising the Motor and Fire Tariffs starting from 2016, the new environment should see competition intensify and margins narrow. However, we note that Tokio Marine appears to be on an active M&A trail since 2008 - paying between US$2.7bn to US$7.5bn for U.S. insurers such as Delphi Financials and HCC Insurance Holdings Inc. Registering a 1% increase in FY15 net profit to RM75.2mn, we further note that RHB Insurance is profitable. HOLD maintained for RHB We make no change to our earnings estimates for now. TP is maintained at RM5.40. HOLD reiterated on RHB Cap. Our new TP is based on implied FY17e PBV of 1.07x. The stock is also currently trading at 1.06x, a slight discount vis-àvis the industry’s average PBV of 1.18x. Going forward, management envisage loan demand to remain soft, pressure on NIM to continue and fee income from investment banking and capital markets to stay subdued. While we expect spillover effects from an industry-wide deterioration in asset quality to persists, we believe RHB could be at risk of several lumpy corporate impairments in the O&G, manufacturing and real estate sectors. Page 1 of 2 www.taonline.com.my Share Information Bloomberg Code Stock Code Listing Share Cap (mn) Market Cap (RMmn) Par Value 52-wk Hi/Lo (RM) 12-mth Avg Daily Vol ('000 shrs) Estimated Free Float (%) Beta Major Shareholders (%) RHBC MK 1066 Main Market 4010.0 20050.0 1.00 5.17/3.854 1769.6 25.4 1.1 EPF - 41.0 Aabar Investments - 13.6 OSK Holdings - 7.8 Forecast Revision Forecast Revision (%) Core net profit (RMm) Consensus TA's / Consensus (%) Previous Rating FY16 FY17 1,961.1 2,154.9 1,918.0 2,104.0 102.2 102.4 Hold (maintained) Financial Indicators ROE (%) ROA (%) Gross impaired loans (%) BV/ Share (RM) Price/ BV (x) FY16 10.6 0.8 2.28 4.7 1.1 FY17 10.7 0.9 2.18 5.1 1.0 Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth RHBC (2.3) 6.2 22.6 13.2 FBM KLCI 1.5 3.2 1.4 3.5 (12-Mth) Share Price relative to the FBM KLCI Source: Bloomberg
  2. TA Securities 1-Sep-16 A Member of the TA Group Financial Summary (RMmn) Profit & Loss Statement FYE 31 Dec (RMm) FY14 Interest income 7,469.7 Interest expense (4,178.4) Net interest income 3,291.3 Islamic banking income 732.2 Total non-interest income 2,211.4 Total income 6,234.9 Overhead expenses (3,411.2) Operating profit 2,823.7 Loan loss provisioning (88.9) Associates contributions 0.3 Profit before tax 2,735.1 Taxation and MI (697.1) Net profit 2,038.0 FY15 7,935.3 (4,635.5) 3,299.8 875.9 2,015.5 6,191.2 (3,793.2) 2,398.0 (291.6) 0.3 2,106.7 (595.3) 1,511.4 FY16E 8,126.0 (4,764.4) 3,361.6 981.0 2,114.1 6,456.7 (3,327.2) 3,129.5 (501.6) 0.3 2,628.3 (667.1) 1,961.1 FY17E 8,468.0 (4,961.6) 3,506.4 1,098.8 2,238.3 6,843.5 (3,482.1) 3,361.4 (476.4) 0.4 2,885.4 (730.4) 2,154.9 FY18E 8,915.4 (5,236.2) 3,679.2 1,230.6 2,370.0 7,279.8 (3,760.7) 3,519.1 (363.6) 0.4 3,156.0 (797.2) 2,358.8 Key Financial Ratios and Margins FYE 31 Dec FY14 Return and efficiency ROE (%) 11.5% ROA (%) 1.0% Net interest margin (%) 1.7% Fee-based/total income (%) 23.3% Non-interest/total income (%) 35.5% Cost-to-income (%) 62.0% FY15 FY16E FY17E FY18E 8.3% 0.7% 1.6% 21.0% 32.6% 71.4% 10.6% 0.8% 1.6% 21.1% 32.7% 60.8% 10.7% 0.9% 1.6% 21.1% 32.7% 60.6% 10.9% 0.9% 1.6% 21.0% 32.6% 62.2% Balance sheet Loans grow th (%) Impaired loans ratio (%) Loan loss reserves (%) Deposit grow th (%) LD ratio (%) 17.0% 1.7% 61.1% 14.1% 89.5% 6.3% 1.5% 63.2% 0.7% 94.6% 6.0% 1.5% 87.6% 6.0% 93.8% 6.0% 1.6% 82.5% 6.0% 94.0% 6.0% 1.5% 84.0% 6.0% 94.2% Balance Sheet Statem ent FYE 31 Dec (RMm) FY14 Cash and short-term funds 16,236.9 Deposit w ith FIs 2,298.6 Marketable securities 43,002.7 Total current assets 61,538.2 Net loans and advances 140,693.0 Fixed assets 1,030.7 Intangible assets 5,273.9 Other long-term assets 10,818.7 Total assets 219,354.4 FY15 12,881.4 1,199.0 46,897.2 60,977.6 149,580.0 1,041.6 2,976.0 13,363.2 227,938.3 FY16E 10,001.6 1,259.0 48,626.1 59,886.6 157,239.6 1,041.6 2,976.0 14,274.7 235,418.4 FY17E 9,787.7 1,321.9 50,429.1 61,538.7 167,018.9 1,041.6 2,976.0 15,771.3 248,346.5 FY18E 9,577.9 1,388.0 52,309.7 63,275.6 177,398.0 1,041.6 2,976.0 17,454.2 262,145.5 Investment statistics PER (x) PBT grow th rate (%) EPS (sen) EPS grow th rate (%) BV per share (RM) P/BV (x) DPS (sen) Dividend yield (%) Dividend payout (%) 9.8 10.7% 50.8 11.3 7.20 0.69 6.00 1.2% 11.8% 13.2 -23.0% 37.7 (25.8) 5.06 0.99 12.00 2.4% 31.8% 10.2 24.8% 48.9 29.8 4.70 1.06 12.00 2.4% 24.5% 9.3 9.8% 53.7 9.9 5.07 0.99 12.00 2.4% 22.3% 8.5 9.4% 58.8 9.5 5.51 0.91 12.00 2.4% 20.4% Customer deposits Deposits from other FIs Repurchase securities Bills and acceptances Borrow ings Other liabilities Total liabilities 157,134.0 21,349.6 508.4 614.0 12,386.3 8,468.0 200,460.4 158,157.8 20,645.9 4,906.2 626.4 10,737.3 15,172.3 210,245.9 167,647.3 18,581.3 2,453.1 657.7 10,737.3 16,015.2 216,091.9 177,706.1 18,952.9 2,453.1 690.6 10,737.3 16,908.0 227,448.0 188,368.5 19,332.0 2,453.1 725.1 10,737.3 17,853.7 239,469.7 20,898.5 22,675.8 Capital and Funding Position FYE 31 Dec Gearing Double leverage Customer deposits Deposits from banks and other FI Equity and Debt capital Borrow ings and senior debt sec Loans sold to Cagamas FY11 0.54 149% 79% 7% 11% 2% 1% FY12 0.39 136% 77% 8% 11% 3% 1% FY13 0.36 134% 75% 9% 12% 3% 1% FY14 0.39 137% 74% 10% 12% 3% 1% FY15 0.29 106% 73% 9% 14% 3% 1% Total equity + MI 18,894.1 17,692.5 19,326.6 Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. for TA SECURITIES HOLDINGS BERHAD(14948-M) (A Participating Organisation of Bursa Malaysia Securities Berhad) Kaladher Govindan – Head of Research Page 2 of 2