Kurnia’s annualized 1QFY09a results came in 60.7% and 21.1% above consensus and our full year estimates respectively. Reversing a net loss of RM12.1m in the previous corresponding quarter, Kurnia staged an impressive comeback with a net profit of RM32.2m. The sharp improvement was largely due to higher investment income and more prudent underwriting practices via its Transformation of Operations and Performance (TOP) exercise, which saw Kurnia aggressively turning away unprofitable third party motor insurance. We are keeping our FY10EPS forecast of 8.6 sen, which gives the stock a forward PE of 8.7x. Applying the industry average PE of 13x over FY10EPS gives us a preliminary fair value of RM1.12. Imputing a 10% discount for its relatively high gearing gives us a fair value of RM1.01.
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