MPHB Capital - A strategic tie-up in the making

Date: 
2014-01-23
Firm: 
MAYBANK
Stock: 
MPHBCAP
Price Target: 
2.12
Price Call: 
BUY
Last Price: 
1.60
Upside/Downside: 
+0.52 (32.50%)
That the company is to commence negotiations on a strategic tie-up on the insurance front is certainly a positive.
 
Assuming a P/BV of 2.2x, this would lift MPHB’s SOP value by 11% to MYR2.35 (+42% upside). Disposal of the Balik Pulau land would add another 27sen lifting SOP to MYR2.62 (+58%). 
 
Not only is MPHB’s landbank undervalued, but it also now offers potentially stronger growth in its insurance division if this tie-up materialises. 

What’s New 

Bank Negara has given MPHB its permission to commence preliminary negotiations with an interested party in relation to the possible disposal of a minority equity interest in its insurance arm. 

What’s Our View 

Certainly a positive development that has materialised sooner than we expected. MPHB has five years to 2018 to pare its stake in Multi-Purpose Insurans (MPI) to less than 50% to be exempt from Bank Negara’s financial holding company ruling. As such, we think that a minority interest here could be 49% at first, with a view to crossing the 50% threshold at a later stage. 

MPI is currently valued at a historical P/BV of 1.6x in our SOP computation. Assuming a P/BV of 2.2x, the average valuation for some recent general insurance M&As, this would lift our SOP by 11% to MYR2.35, and to MYR2.62 if we factor in another 27sen from the isposal of the group’s 208 acres in Balik Pulau, Penang, at MYR25psf versus the MYR7psf assumption currently imputed in our OP (the deal has yet to be completed). 
 
Currently a mid-sized general insurer that ranked 13th of 25 general insurance companies in 2012, MPI could certainly do with scale, and a strategic partner, particularly a large foreign one, would no doubt provide this. We remain upbeat on the stock – BUY. 

Source: Maybank Research - 23 Jan 2014

Discussions
Be the first to like this. Showing 3 of 3 comments

buffetthe2nd

buy

2014-01-23 13:41

member41

Buy buy

2014-01-23 13:54

thesteward

looks like will be going up to break rm1.80 this round including Monday

2014-01-23 15:56

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