MALAYSIA’S largest banking group, Malayan Banking Bhd, is looking at listing its insurance and takaful arm under the Etiqa brand, say sources.

The catch is that Etiqa will have to maintain its earnings growth momentum next year, at a time when the market is slowing down and insurers are grappling with de-tariffication, which is eroding margins.

Nonetheless, Etiqa would be the single largest listed insurer worth at least RM10 billion if it can go public with its RM5.07 billion in net assets as at Sept 30. Currently, the largest listed insurance company on Bursa Malaysia is LPI Capital Bhd.

“If Maybank can list Etiqa at a higher valuation than what the group is commanding, then it makes sense. However, it will depend on Etiqa meeting some ambitious earnings targets next year, made even more challenging by market conditions and the liberalisation of the industry,” says the source.

Maybank is currently valued at 1.63 times book value. By comparison, listed insurance companies average a price-to-book valuation of 1.82 times. LPI, which operates only in the general insurance segment, is valued at 2.42 times book value.

LPI leverages Public Bank Bhd’s network, much like Etiqa does Maybank’s.

Based on LPI’s valuation, Etiqa — with its wider offerings — could boast a market capitalisation anywhere upwards of RM12 billion, say sources.

Currently, LPI has the largest market capitalisation (RM3.89 billion), followed by Allianz Malaysia Bhd (RM1.99 billion) and Syarikat Takaful Malaysia (RM1.74 billion).

“Assuming they (Maybank) list the whole Etiqa unit — insurance and takaful — the valuation should be at the high range for life insurance and life insurance/family takaful. Recent life insurance valuations range from two to three times book value. General insurance and general takaful might be at the top of 1.3 to 2.5 times book value,” says one bank-backed analyst.

Etiqa’s life business is able to command high valuations because of its captive market and access to Maybank’s perpetual and bancassurance relationships and network of some 400 branches, the analyst points out.

Etiqa is a market leader in general takaful with a 40% share, he says, adding that takaful licences are very valuable. “Institutional fund interest would be high, especially in its life insurance business, as there is a scarcity of quality life and general listed companies on Bursa.”

Etiqa’s business is almost a 50:50 split between life and general insurance. In the general insurance market, it has an estimated 8% share in terms of gross premium. It is worth noting that this segment is relatively fragmented with more than 30 players.

Maybank controls only 69% of Maybank Ageas Holdings Bhd, which in turn holds all the insurance and takaful businesses. The remaining 31% is held by Ageas Insurance International, a British-based insurer. Nevertheless, the approval of its foreign partner is less of an issue.

So, is Etiqa ready? This year, it generated RM582.4 million in profit before tax (PBT) for the nine months ended Sept 30, down 1.9% from the previous corresponding period, mainly due to higher claims from the insurance and takaful business. Annualising its overall earnings, Etiqa should end the year with a PBT exceeding RM700 million.

Nonetheless, some analysts say the listing of Maybank’s insurance and takaful arm would not be a significant re-rating catalyst for the group, given that Etiqa’s value has already been imputed into the group’s sum of parts.

Interestingly, insurance stocks have remained relatively resilient while banking stocks have taken a beating in the past months. Maybank’s share price has fallen 10.7% in the past two months and closed at RM8.89 last Friday.

This article first appeared in The Edge Malaysia Weekly, on December 8 - 14, 2014.

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