40% upside, initiate with BUY. What MPHB Capital (MPHB Cap) provides exposure to is a profitable general insurance company with ROEs of 14-16% and 2,727 acres of land bank/properties where the full value has yet to be realized. The properties alone are valued at MYR1.30 per MPHB Cap share, MYR1.57 if we revise up the valuations for its Balik Pulau land, which implies that at MPHB Cap’s current share price of MYR1.51, investors are getting the general insurance for free. Our SOP value of MYR2.12 per share offers 40% upside and we initiate coverage with a BUY rating.

Product of a demerger. Listed in Jun 2013, MPHB Cap today houses the non-gaming businesses of the MPHB Group i.e. the general insurance, credit & leasing and investment property divisions. The largest contributor to MPHB Cap’s group earnings is Multi-Purpose Insurans (MPIB) which accounted for 83% of core pretax profit in 2012.

Healthy premium growth. Unlike most general insurers whose portfolios are skewed towards motor, MPIB offers a more balanced mix (motor 25%, fire 22%, personal accident 11% end-2012). We project healthy gross premium growth of 11% p.a. riding on new products, new clientele acquisition as well as an expected 10% annual expansion in agency force (end-2012: 1,120 agents).

GDV of MYR4.2b. Aside from four acres of prime land in the KL CBD that have yet to be developed, MPHB Cap also has three pieces of land slated for JV development. It is expected to share in 22% of the GDV of these developments which currently total MYR4.2b. The group also receives recurring annual revenue of MYR30m-40m from two hotels, an office and an oil palm plantation in Johor.

Upside from Balik Pulau land. Property valuations are based on a recent assessment by three independent valuers, while we value MPIB at 1.6x P/BV and MP Credit at 1.0x P/BV. Property valuations are conservative in our view, for the group’s 208 acres in Balik Pulau, Penang, were recently sold at MYR25 psf vs Raine & Home’s valuation of MYR7 psf. This would raise our SOP by 27 sen to MYR2.39/share (upside of 58%). It would also take MPHB Cap’s end-Dec 2013 book value to MYR1.78/share which implies just 0.8x P/BV at current levels.

Source: Maybank Research - 2 Oct 2013