Asia Financial: Family-Owned Company With Attractive Insurance Assets

James Choa of Valiant Ocean Capital presented his in-depth investment thesis on Asia Financial Holdings (Hong Kong: 662) at Best Ideas 2018.

Asia Financial Holdings, founded in the 1950s, is a family-owned insurance-focused holding company. AFH’s key investments include (i) wholly owned Asian Insurance (P&C), (ii) a joint venture in reinsurance, life insurance, and asset management, and (iii) direct investments, such as stakes in PICC Life and Bumrungrad Hospital, Southeast Asia’s largest private hospital. Asia Insurance, with its strong local market knowledge and underwriting experience, has one of the best underwriting track records in the region. Due to the insurer’s conservative underwriting and focus on profitability, the combined ratio improved to 81.4% in 2016, better than the 88.7% average for the top ten insurers. Reflecting the company’s strong competitive position and solid capital base, S&P has assigned an “A” rating to the business. AFH trades at a discount of ~44% to book value. The recent stock price is HK$4.40 per share, as compared to investments per share of HK$5.90 and cash on hand of HK$2.70 per share. Furthermore, the stake in PICC Life alone, which is carried at historical cost, could be worth 80+% of AFH’s recent market cap. The market effectively implies a negative value to the insurance operation. Asia Financial therefore sits on attractive assets ignored by the market. While the recent decision to dispose of the stake in Hong Kong Life is a good start to unlocking value, James sees multiple avenues in the short and medium term to enhancing value.

About the instructor:

James Choa is a private investor. He previously served as Managing Director of Valiant Ocean Capital, a Hong Kong-based value-oriented investment firm focused on companies with substantial exposure to Asia. Prior to Valiant Ocean, James was a member in the Goldman Sachs Asian Special Situations Group (ASSG), a multi-billion proprietary investment group, based in Hong Kong. Since joining Goldman Sachs in 2006, James was responsible for multi-strategy investments in Asia, covering public equities, PIPEs, private equity, high-yield loans, distressed debts, convertible bonds and value-based investments. Before Goldman Sachs, James was an Associate at the New York private equity firm Ripplewood Holdings, where he was responsible for structuring and executing leveraged buyout transactions in the industrial sector. Subsequent to completing the $550 million investment in Kraton Polymers, a specialty chemical business, James was appointed by Ripplewood to design strategic growth plans and implement operational enhancement strategies at the portfolio company in Houston, Texas. James started his career in New York with BT Wolfensohn (which subsequently merged with Deutsche Bank) where he focused on advising clients in mergers, acquisitions, and corporate reorganizations. James received his MBA with a concentration in Corporate Restructuring & Turnaround Management at the Wharton School, University of Pennsylvania. James also graduated from the Jerome Fisher Program in Management & Technology from the University of Pennsylvania where he received his BSE in Finance and BAS in Systems Engineering. James is a CFA charter holder and a member of the Hong Kong Institute of Directors.

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