• We maintain our BUY recommendation on Alliance Bank Malaysia (ABMB) with an unchanged fair value of RM5.15/share. Our fair value is supported by an FY20 ROE of 10.5%, pegging the stock to a P/BV of 1.3x.

• Alliance Bank and its subsidiary, Alliance Islamic Bank (AIB) announced that they have inked bancassurance agreements with Zurich General Insurance Malaysia and Zurich General Takaful Malaysia (Zurich Malaysia).

• The bancassurance partnerships will be for a period of 15 years effective 1 May 2019.

• Under this collaboration, Zurich Malaysia will distribute its general insurance and general takaful products via Alliance Bank and AIB, leveraging the banks’ 81 branches, over 860 sales personnel and digital channels.

• We understand that for a start, insurance for the protection of properties against fire damage will be offered. We expect these to be targeted at the borrowers’ Alliance One Account (AOA) and SME loan facilities taken from Alliance Bank which are secured against residential and commercial properties. This will subsequently be followed by the availability of other general insurance products for SMEs as well as personal insurance and takaful plans.

• Details on the structure of this collaboration have not been disclosed. We expect commission income to be generated from general insurance and takaful products sold through Alliance Bank and AIB. Besides, the group is expected to receive fees from Zurich over the collaboration period of 15 years. This is likely to be similar to the group’s earlier bancassurance partnership with Manulife for life insurance products entered in 2013. It was reported that the group will be paid a total fee of RM70mil over the 10- year collaboration (from 2013) with Manulife.

• In view of the fact that the bancassurance agreement has only been executed, no impact is expected on the group’s FY19 earnings. Nevertheless in FY20, any commissions as well initial fees earned from the tie-up with Zurich are expected to be positively accretive to the group’s earnings. According to media reports, the partnership with Zurich is targeting to generate a revenue of RM200mil over 15 years.

• We are maintaining our forecast for Alliance Bank for now pending further clarity on the commission and fee payment structure from the general bancassurance and bancatakaful alliance with Zurich Malaysia.

Source: AmInvest Research - 23 Apr 2019