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Saturday, April 9, 2011

Some views on MAA's deal with Zurich

Since MAA is quite a hot topic over the past week and looking at the extreme price movements, I think it's good to post some contrasting views on MAA below, thanks to the nice people who care to write and comment on MAA to me and other bloggers (I'm borrowing from Dali's commentators on MAA as well). 

Simon:

"M&A for RM1.2b of the 70% is cheap as they are buying life insurance license, existing agent of 12K. Turnover is growing at base of RM2.2b. Zurich is making 10% profit, thus MAAB under Zurich will soon resemble Zurich's profit margins with cost-cutting and downsizing of workforce (as u know many are deadwoods). This would translate to RM220mil profit within the next 2-3 years. Given PE of 8x, the company is worth around RM2bil, 70% stake for RM1.2bil makes sense. Besides, Hong Leong bought a smallish bank just for the license, and paid RM1bil for the license back in early 1990s. Look at the valuation of Hong Leong bank now?

Another interesting thing to look at is, with the 30% remaining stake in MAA under zurich. Imagine the dividend it will receive every year if the profit is say, RM300mil. Assuming 50% is paid through dividend, RM50mil profit for MAA by just sitting there doing nothing. Going forward, when the govt allows 100% ownership of foreign insurarer, Zurich might fork out another RM1.2bil to buy remaining 30% stake. So, the fair value for MAA for longterm investor could be RM5 as a start. As it had been lying low for so long, many will think that it is not worth this much now."


From Dali's commentator, Jeff:

"Bro, cannot be typo error. Look at MAA turnover & profits. That should explain all. TY has said previously that he wants 300 to 500m for the general insurance business. Now the deal is 70% of MAA that includes the life insurance also. Zurich gets management control hence the premium in the deal. Why the share does not limit up? Cos nobody trust TY as he has cried wolf to many times. So anybody who has the share will dump it. Someone leaked the news. That's why the earlier denial. Who benefits most from the deal? TY & gang who holds majority. Cash minus loan of 200m still translates to 1b bal. He will do a Melewar & declare RM2 capital repayment. Again who benefits? MAAH will still have 30% to ride on Zurich minus the headache plus Takaful which he can still sell later. Remain debt free & venture into new business. Still who trust TY? That's why everybody dump the shares based on lunch time vol of 45m . Who ultimately gain more if the deal goes through? This is a very smart wolf. since nobody trusts TY & repeated denial normally means there is some truth to the deal. Even if the deal is between 600 to 900m is still big money. TY wants everybody to dump MAA but he is not gonna fool the mkt all the time. Time will tell. See whether he can redeem himself now. But who trust TY???"

Will post reply soon if any :p Got to go now. Happy thinking!

2 comments:

  1. Bro,
    I have just checked bursa disclosure on 11th april & discovered that TY intends to sell 100% of MAAB which holds life & general insurance. Disclosure is as follows:

    The Company wishes to announce that the Company has submitted an application to Bank Negara Malaysia (“BNM") on 11 April 2011 for the approval of the Minister of Finance pursuant to Section 67 of the Insurance Act 1996 of Malaysia to enter into an agreement with Zurich for the Proposed Disposal by the Company of their entire equity interest held in the capital of MAAB and the following subsidiary companies to Zurich :

    1) Multioto Services Sdn Bhd ;
    2) MAAGNET Systems Sdn Bhd (“MAAGNET”) ;
    3) Malaysian Alliance Property Services Sdn Bhd;
    4) MAAGNET –SSMS Sdn Bhd ( a wholly -owned subsidiary of MAAGNET).

    This meets the BNM criteria cos BNM cleary states that for disposal > 70% BNM can consider on a case by case basis.
    Hence the NSTP article makes sense. Someone let the cat out of the bag early.

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  2. Bro,
    one more thing....why the deal excludes talaful cos TY cannot make capital repayment like jerneh if MAA has no business at all. Hence MAA must have another businee in hand & it may take a long time to materialise. Short cut is distribute surplus cash then sell Takaful to zurich. A very smart wolf. He ain't fooling me on this deal.

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