PP 7767/09/2010(025354)

Malaysia Corporate Highlights RHB Research

Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M
New s Upda te
9 August 2010
MARKET DATELINE

Kurnia Asia Share Price : RM0.505

Fair Value : RM0.63
Proposed Private Placement Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (KURASIA; Code: 5097) Bloomberg: KUAB MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing DY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009(a)^ 1,149.9 86.2 2.9 -23.7 23.3 - 3.3 18.8 28.7 1.0 0.0
2010(f) 1,134.2 99.1 6.6 129.8 7.6 8.0 1.9 6.2 24.8 0.9 0.0
2011(f) 1,185.4 104.4 7.0 5.3 7.2 8.0 1.5 5.8 20.7 0.7 2.8
2012(f) 1,244.2 116.7 7.8 11.8 6.5- 1.2 5.3 18.8 0.5 3.1
Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates
^ Numbers are annualised, FY12/09 consists of 6 months period due to change in FYE from June to Dec

♦ Proposes 10% private placement. Kurnia announced that it is planning to Issued Capital (m shares) 1,500.0
undertake a 10% private placement of its shares, which would increase its Market Cap (RMm) 757.5

share capital to 1.65bn shares of RM0.25 each (from 1.5bn previously). The Daily Trading Vol (m shs) 0.34
52wk Price Range (RM) 0.51 – 0.805
shares will be allocated to institutional investors who will be identified at a
Major Shareholders: (%)
later date.
Tan Sri Kua Sian Kooi 51.4

♦ Pricing of the placement. Indicative price of the placement shares has yet
FYE Dec FY10 FY11 FY12
to be determined. However, it is expected to be priced based on a discount EPS chg (%) - - -
of not more than 10% from the 5-day weighted average market price Var to Cons (%) (17.5) (12.5) -
(WAMP) of Kurnia shares immediately preceding the yet to be determined
price fixing date. Assuming an indicative issue price of RM0.52 per share, PE Band Chart
Kurnia’s placement is expected to raise proceeds of RM77.4m. PER = 25x
PER = 20x
PER = 15x
♦ Utilisation of proceeds. RM40m of the proceeds from the placement will be PER = 10x
used to repay Kurnia’s borrowings, while the balance (ex-RM1.65m for
placement expenses) will be used for the working capital of Kurnia or for the
strengthening of its Internal Capital Adequacy Ratio (ICAR). We understand
that any deviation from the illustrated proceeds of RM77.4m will be adjusted
against the amount allocated for working capital purposes as per Table 2.
Relative Performance To FBM KLCI
♦ Dilution to EPS. The proposed placement is not expected to have any
dilutive effects on Kurnia’s FY10 net EPS. However, our forecast FY11 EPS
Kurnia Asia
will be diluted by approximately 9.1% to 6.3 sen, from 7.0 sen.

♦ Risks: 1) Change in government policy that may result in lower car prices;
2) Jump in claims ratio; and 3) Total expense ratio may exceed 100%.

♦ Forecasts. We are leaving our forecasts unchanged for the time being,
FBM KLCI

pending the completion of the placement and Kurnia’s 2Q FY12/10 results.

♦ Investment case. We believe the EPS dilution may not be well received by
investors given the concerns over the delay in the Government’s decision on
the motor de-tariff proposal. We are maintaining our fair value estimate at
RM0.63 based on 9x FY12/11 EPS for now, but we will review our
assumptions and our Outperform call after speaking with management.

Yap Huey Chiang

Please read important disclosures at the end of this report. (603) 92802641
yap.huey.chiang@rhb.com.my

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Table 2. Utilisation of proceeds

Indicative price* (RM) 0.50 0.52 0.54

Repayment of borrowings (RMm) 40.000 40.000 40.000

Working capital expenses (RMm) 32.771 35.748 38.725

Placement expenses (RMm) 1.650 1.650 1.650

Total (RMm) 74.421 77.398 80.375

*For illustration purpose

Source : Company and RHBRI estimates

Table 3: Earnings Forecasts Table 4: Forecasts Assumptions

FYE Dec (RM m) FY 10F FY 11F FY 12F FYE Dec (RM m) FY 10F FY 11F FY 12F
Turnover 1,134.2 1,185.4 1,244.2 Premium growth 8.0 5.0 5.0
Premium 1,023.7 1,074.9 1,128.6 Retention ratio 89.0 89.0 89.0
Investment Income* 100.5 100.5 105.5 NEP/GWP 94.8 95.2 95.2
Others 10.0 10.0 10.0 NEP/NWP 106.5 107.0 107.0
Claims ratio 67.0 67.0 66.5
Underwriting surplus 53.4 56.3 64.5 Commission ratio 10.0 10.0 10.0
Investment income 100.5 100.5 105.5 Mgmt exp ratio 17.5 17.5 17.5
Others (20.9) (24.3) (21.1) Total ratio 94.5 94.5 94.0
Invt return 5.2 5.2 5.2
Pretax 133.0 132.5 148.9 Source: RHBRI estimates
Tax (33.9) (28.1) (32.2)
Net 99.1 104.4 116.7
Source: Company, RHBRI estimates
* for both general insurance subsidiary and holding company

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
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may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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