Kurnia's  FY11 grosspremium and net profit came in below our expectations accounting for 90.3% and89.3% of our estimates respectively attributed to the RM9.95m share of lossesincurred by KIMB from Malaysia Motor Insurance Pool (MMIP). Net profit surged224.0% y-o-y, largely due to stable gross premium growth and lower claimsratio. Maintain TRADING BUY, with a fair value of RM0.68, based on the possiblesale of Kurnia Insurans (KIMB).

In line if not forMMIP. Kurnia's FY11 gross premium and net profit came in below our expectationsaccounting for 90.3% and 89.3% of our estimates respectively attributed to theRM9.95m share of losses incurred by KIMB from Malaysia Motor Insurance Pool (MMIP).Nonetheless, net profit surged by 61.6% q-o-q and 224.0% y-o-y, largely due to strongergross premium written (+4.8% y-o-y), lower claims ratio and lower management expenses.  4Q11's net investment income surged by 89.4%q-o-q due to better market conditions in the 4Q. Overall investment incomeyield for the year stood at 5.76%. No dividends were declared for FY11 as thegroup is committed to maintain its capital adequacy ratio above Bank Negara's(BNM) requirement of 130%.

Lower managementexpenses.  Management expenses ratioreduced by 1.8% y-o-y from 16.5% in FY10 to 14.7% in FY11 as a result of bettercost management (lower personnel cost and absence of non-recurring professionalfees). The group's commission ratio also improved from 9.5% in FY10 to 7.7% inFY11. We believe that the group will be able to further improve its managementexpenses ratio going forward.

Positive growthexpected moving forward. We expect the group to remain profitable movingforward as the group's commitment to manage its motor portfolio has been successfuland they will also benefit from the revision in motor tariff premium rates. However,we anticipate that MMIP's business will continue to be in losses in the next yearor two and hence we are lowering our FY12 earnings estimate by 12.4% to accountfor the losses from MMIP which we estimate to be around RM2m per quarter andlower investment income due to a feeble 2012.

Sale of KIMB stillpending BNM's approval. We gather that the sale of KIMB which is stillpending Bank Negara (BNM)'s approval will most likely materialize. Should KIMBbe sold, we do not rule out a possible capital repayment to reward itsshareholders.

Maintain TRADING BUY.We maintain our Trading Buy call on Kurnia, with a fair value of RM0.68 attributing it to the potential book valueafter the potential sale of KIMB.

Source: OSK188