The Group announced that its 51%-owned AmGeneral Holdings Berhad has entered into an Implementation Agreement with Liberty Insurance Berhad to dispose its entire interest in AmGeneral Insurance for RM2.29bn. While more specific details on the transaction will be released in due course, we are slightly positive on the deal which prices the transaction at ~10x earnings multiple, provide some capital uplift while also allowing the Group to equity-account combined earnings of Liberty Insurance and AmGeneral Insurance which does not appear to leave it any worse off. We keep earnings estimates unchanged at this juncture pending further clarity on details. Our Neutral call and RM3.10 target price are also kept unchanged.

• The transaction will see Liberty Insurance Berhad (LIB) acquire a 100% equity stake in AmGeneral Insurance Berhad (AGIB) from AmGeneral Holdings Berhad (AGHB) for RM2.29bn. AMMB’s share of proceeds from the disposal will be satisfied via a combination of cash and shares, which will result in AMMB holding a 30% interest in the combined businesses of LIB and AGIB.
  
  Upon completion of the entire deal, AMMB and Liberty Mutual Insurance Company (the parent company of LIB) will hold a 30% and a 70% equity stake respectively in the combined LIB and AGIB. AMMB will account for the proposed disposal as a disposal of subsidiary, and subsequently account for the 30% interest in the combined LIB and AGIB as an associate.
   
• Financials. For FYE March 2020 and FYE March 2021, AGIB reported net profits of RM228m and RM233m respectively. LIB recorded a net profit of RM41.2m in FYE December 2019 and a net profit of RM63.7m as at June 2020 (half-year) meanwhile, based on most recent publicly-available data. Following the merger of LIB and AGIB, the combined entity will be the largest motor insurer and second-largest general insurer in Malaysia (based on 2020 data). The proposed disposal will also see AMMB entering into a 20-year new bancassurance partnership with the merged entity

Source: PublicInvest Research - 21 Jul 2021