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Broker's take: Stake sale in Great Eastern's Malaysia ops may unlock 'small value' for OCBC shareholders


THE potential sale of a stake in Great Eastern's Malaysian operations may present some "small value" for OCBC shareholders, a DBS Group research report said on Wednesday.

The broker call comes amid reports that Great Eastern is planning to selloff a stake in its Malaysian operations for US$1 billion, said a report in Malaysian newspaper, The Star, on Wednesday. The move is expected to be aimed at meeting requirements set by the Malaysian central bank of a 30 per cent local ownership in foreign insurers.

DBS noted that Bank Negara Malaysia is said to be considering to "strictly enforce" the 70 per cent foreign ownership cap on insurers, which was issued back in 2009. "We understand the timeline could be fluid, and negotiations could be managed on a case-by-case basis," the brokerage said.

On average, Great Eastern contributes approximately 15 per cent to OCBC's pre-tax group earnings. OCBC holds 87.8 per cent of Great Eastern, and the Malaysian unit of Great Eastern is estimated to make up 6 per cent of the OCBC group's pre-tax profit. It is believed that Great Eastern holds pole position in Malaysia.

Market voices on:

"A 30 per cent divestment of its Malaysian operations would have minimal impact on OCBC. There would however be some value unlocked to Great Eastern and OCBC's shareholders."

DBS maintained its "buy" call, with a target price of S$12.80.