KUALA LUMPUR: The earnings impact of AMMB Holdings Bhd 's disposal of its stake in AmGeneral to US-based Liberty Mutual Insurance is expected to be minimal while enhancing its capital ratios.

       Maybank Investment Bank Research, which has a "buy" call on AMMB, kept its target price of RM3.50 based on forecast 2022 price-book value (PBV) of 0.7x and return of equity of 7.6%.

       Liberty Mutual Insurance is seeking to acquire 100% of AmGeneral Insurance from AMMB (51%) and Insurance Australia Group (49%).

       Thereafter, the operations of Liberty Insurance Bhd will be merged with AmGeneral’s to form the largest auto insurer and second largest general

       insurer in Malaysia.

       AMMB will be paid in cash and shares, whereby it will eventually hold a 30% stake in the enlarged insurance entity.

       The merged entity will then enter into an exclusive 20-year bancassurance partnership with AMMB to distribute general insurance products.

       According to the research house, the acquisition cost of RM2.29bil prices AmGeneral at a historical PBV of about 1.4x, which is lower than the PBV of 1.8x to 2x for historical mergers and acquisitions.

       It added that it is not surprising given the competition since the detariffication of the industry and economic conditions have weakened.

       As AMMB will hold a 30% stake in the merged entity following its 51% disposal in AmGeneral, based on the latter's acquisition price of RM2.29bil, the cost of the 21% stake differential would translate to RM481mil.

       "This would enhance AMMB’s CET1 to 11.6% (non-transitional; 12.5% transitional) from 11.1% (12% transitional).

       "AmGeneral contributes to about 11% of group earnings but with AMMB maintaining a 30% stake in the enlarged entity and with a banca agreement in place, we expect the loss in earnings to be <2%," said Maybank IB.