• Stay BUY, new MYR16.70 TP (from MYR16.40), 19% upside, c.5% yield. Allianz Malaysia (AMB) posted its maiden quarterly results aligned to the new Malaysia Financial Reporting Standards 17 (MFRS17), with the group net profit growing 15% YoY in 1Q23 on greater insurance revenue and investment income. We continue to like Allianz for its strong brand equity and market presence, along with its solid ESG credentials.

• Group results review. Insurance service revenue rose 9% YoY to MYR1.2bn on the back of stronger contributions from both Allianz General (AGIC) and Allianz Life (ALIM). Claims fell 2% YoY due to several one-off adjustments that should unwind in the coming quarters – management is still expecting claims to remain elevated in FY23. Investment return doubled YoY in the absence of large marked-to-market losses on ALIM investments. Overall, AMB’s 1Q23 net profit of MYR172.7m was a 15% increase YoY.

• AGIC. Insurance revenue grew 8% YoY thanks to higher gross written premiums (+5% YoY). The combined ratio eased to 84.2% (from 88.4% in 1Q22) as AGIC benefitted from a one-off claims review, on top of timing variances in expense spending (which should normalise over time). Greater investment income and positive marked-to-market movements led to a PBT increase of 50% YoY for the segment.

• ALIM. Annualised new premiums added 11% YoY in 1Q23, outpacing the industry growth of 3% during the period – this was driven by greater contributions from all key distribution channels. Despite stronger investment returns (recall that ALIM was hit with large fair value losses in 1Q22), higher claims experience from the investment-linked protection business led to a PBT decline of 27% YoY. Nevertheless, the contractual service margin (CSM) balance grew 1.2% YTD, which is positive for future revenue inflow for the segment.

• Forecasts and TP. We keep our forecasts for now, but will update our model post-results season to factor in MFRS17 adjustments. Our SOTP- derived TP is lifted to MYR16.70 from MYR16.40, as we ascribe a higher ESG premium of 6% from 4% given its updated ESG score of 3.3. Key downside risks include weaker-than-expected sales, higher-than-expected claims, and weaker-than-expected investment returns.

• ESG framework update. As there is greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 30 May 2023