JERNEH Asia hits 13-yr high on insurance sale rumours

Shares of Jerneh Asia surged to their highest levels in 13 years, buoyed by speculation that a sale of its insurance arm may be imminent.

The stock was among the top gainers on Bursa Malaysia Securities yesterday, surging 36 sen or 12.77% to RM3.18, its highest level since August 1997.

Trading volume was unusually high with 3.07 million shares changing hands, compared with just 143,500 shares on Tuesday.

The company’s warrants were equally active, gaining some 25 sen to RM1.65 buoyed on volume of 5.73 million warrants.

Paramount Corp Bhd was also among the top gainers, rising 17 sen or 4.6% to end trading at RM3.87. Jerneh Asia controls 80% of general insurer Jerneh Insurance Bhd while the remaining 20% is owned by Paramount.

Market talk is rife that a buyer has been found for Jerneh Insurance. Some of the names being bandied about include Italian insurance outfit Assicurazioni Generali SpA, HSBC and South Korea’s Samsung Fire and Marine Insurance Co, but these rumours could not be confirmed.

Nonetheless, talk of the sale does not come as a surprise.

In early June, Paramount Corp’s executive deputy chairman Datuk Teo Chiang Quan had told newsmen that its planned disposal of the 20% equity in Jerneh Insurance was a done deal, but had declined to furnish details of the buyer.

In May, Jerneh Asia had announced that it had received the green light from Bank Negara to start negotiations with certain parties to hive off its 80% stake in the insurance company.

It is noteworthy that the controlling shareholder of Jerneh Asia is tycoon Robert Kuok Hock Nien who has recently been hiving off his assets in Malaysia, such as plots of prime land in the city centre, his sugar business and his equity in Tradewinds (M) Bhd, in which he had a 21% stake.

In Jerneh Asia, Kuok has a 37.48% equity interest. Other substantial shareholders of Jerneh Asia include the family of the late Tan Sri Basir Ahmad with a 15.57% stake and Sable Investment Corp, which has a 7.15% stake.

At Jerneh Asia’s close on Wednesday it had a market capitalisation of RM574 million. Kuok’s stake in Jerneh Asia had a market value of about RM212.81 million.

Recently, Tan Sri Quek Leng Chan’s Hong Leong Financial Group Bhd hived off 30% of its insurance business under Hong Leong Assurance Bhd (HLA) for some RM940 million in cash.

This valued HLA, which has both general and life insurance arms, at RM3.13 billion, or a landmark 6.5 times book, based on the company’s shareholders’ funds of RM485 million.

In 2007, CIMB Group Holdings Bhd hived off its general insurance business Commerce Assurance Bhd to Allianz Malaysia Bhd at a valuation of 2.9 times book.

For the financial year ended Dec 31, 2009, Jerneh Insurance posted a net profit of RM54.69 million on the back of RM452.36 million in revenue. It had shareholders funds of RM291.29 million and total assets of RM751.78 million.

It is not clear how attractive the valuation for Jerneh Insurance will be, as it only has a general insurance arm, and not the more lucrative life insurance business.

In the past, market speculation had it that Jerneh Insurance could be sold for around RM700 million, as previously reported by The Edge. This would value it at about 2.4 times book, not far from Commerce Assurance Bhd’s price tag.

Incidentally, the rumoured price tag of RM700 million would value Jerneh Asia’s 80% stake at RM560 million, roughly equivalent to its market capitalisation yesterday.

This article appeared in The Edge Financial Daily, July 29, 2010.