AMMB not expected to offer special dividend after insurance business sale

The deal will reduce the general insurance business’ earnings contribution to AMMB


CGS-CIMB Securities Sdn Bhd has maintained a ‘Reduce’ call on AMMB Holdings Bhd after the banking group announced the sale of its 51% stake in the general insurance unit, AmGeneral Insurance Bhd (AGIB), to Liberty Insurance Bhd (LIB) for RM2.29 billion consideration.

The brokerage firm’s analyst Winson Ng stated that the deal could reduce general insurance business’ earnings contribution to AMMB in the longer term despite a potential one-off disposal gain.

“We expect AMMB to keep the cash proceeds to boost its capital ratio rather than pay it out as a special dividend,” Ng stated in a report yesterday.

He could not ascertain the one-off disposal gain due to the lack of information on how much the AGIB stake had cost AmGeneral Holdings Bhd (AGHB), the group’s 51%owned subsidiary that owns 100% interest in the motor and general insurance arm.

Assuming AGHB’s cost equates to AGIB’s shareholders’ funds of RM1.62 billion as at end-September 2020, the analyst said AMMB could rake in an estimated one-off gain of RM343.5 million from the deal, accounting for 17% of its financial year ending March 31, 2022, forecast (FY3/22F) net profit.

Ng said the deal would reduce general insurance contributions to AMMB’s net profit in the longer term due to the lower net profit for LIB (RM41.2 million in FY12/19) versus that for AGIB (RM248.4 million in FY3/20).

He does not project a significant increase in LIB’s net profit in the longer term and retained its ‘Reduce’ call on AMMB due to potential share price overhang following the private placement, which will de-rate the stock.

Ng said the private placement, which led to an issuance of 300 million new shares and increased its share base by 10%, was completed on April 14, 2021, and fully factored into its forecast.

“We retain our FY22-24F earnings per share forecast and dividend discount model-based target price of RM2.63,” he said.

AMMB shares declined 1.03% or three sen to RM2.89 yesterday, valuing the company at RM9.58 billion.

On Monday, AMMB announced AGHB had entered into an implementation agreement with LIB to sell its entire stake in AGIB, which will be satisfied via a combination of cash and shares in LIB.

Upon completion of the disposal, AMMB and Liberty Mutual Insurance Co, the parent company of LIB, will hold a 30% and a 70% equity stake in LIB and AGIB, respectively.

Following the disposal, the AGIB-LIB merger would form the largest motor insurer and the second-largest property and casualty insurer in the market with an estimated pro forma premium base of RM2.3 billion in 2022, based on 2020 data.