This article first appeared in The Edge Financial Daily on April 18, 2017 - April 24, 2017

Malayan Banking Bhd
(April 17, RM9.02)
Maintain hold with a lower target price (TP) of RM8. It was reported in a local business newspaper over the weekend that Malayan Banking Bhd (Maybank) is considering a spin-off of its insurance arm, Etiqa International Holdings Sdn Bhd. This is not the first time such an action is believed to have been contemplated by Maybank. Maybank owns 69% of Maybank Ageas Holdings Bhd, whose main operating entities are Etiqa Insurance and Etiqa Takaful. The remaining 31% is owned by Ageas Insurance International, an international insurance group with presence across Asia and Europe. Etiqa Insurance and Etiqa Takaful contributes about 10% to Maybank’s profit before tax.

The Etiqa group offers life and general insurance as well as takaful products, in Malaysia, Singapore and the Philippines. The revenue mix (by gross premium) is 51:49 for life and general insurance and 56:44 for conventional and takaful. Etiqa has a comprehensive distribution network, with an agency force of over 10,000 agents, 28 branches throughout Malaysia, and a wide bancassurance distribution network thanks to Maybank’s strong branch presence.

Etiqa could command approximately 1.5 times book value, in our view, given its strong market share in both life and general business. Based on latest available data, Etiqa holds the top position in general insurance and takaful at 13% market share, and fourth in life and family insurance at 9% market share of new business premium. The closest comparison to Etiqa is Allianz Malaysia Bhd, which also has strong market share in both life and general insurance. Allianz Malaysia is trading at about 1.2 times book value. The most recent merger and acquisition transaction for an insurer with a composite licence is MCIS Insurance Bhd, which fetched a valuation of 1.7 times book value. — AllianceDBS Research, April 17