Investment Highlights

• We maintain our BUY call on Allianz Malaysia (Allianz) with unchanged fair value of RM17.70/share derived from SOP valuation. No changes to our earnings estimates.

• The stock remains deeply undervalued based on a P/BV of 0.5x for FY22.

• The group recorded a lower core net profit of RM152mil (+16.2% QoQ) in 3Q21. This was attributable to a decline in net earned premium (NEP) and lower fair value gains of RM29mil in 3Q21 vs. RM49mil in 2Q21. Yield movements for the 10-year MGS climbed by 10bps QoQ to 3.5% in 3Q21. This has resulted in fair value losses on investments for its life business under ALIM.

• Cumulatively, the group reported a 9M21 core net profit of RM439mil (+16.6% YoY) after stripping out provisions for potential claims from beneficiaries of deceased policyholders based on the listing by the National Registration Department totalling RM62mil (1Q21: RM54mil, 2Q21: RM8mil and 3Q21: Nil). For 9M21 core earnings, we have also excluded the conservative provisions taken for Covid mortality of RM89mil in total (1Q21: Nil, 2Q21: RM40mil and 3Q21: RM49mil).

• 9M21 core earnings were within our expectations, making up 76.6% of our estimate. Meanwhile, it exceeded consensus projection making up 89.0% of street forecast.

• Group operating revenue grew by 7.7% YoY for 9M21 supported by higher gross earned premium (GEP) and investment income. Allianz’s 9M21 combined ratio improved to 95.0% vs. 98.4% in 9M20, underpinned largely by lower commission and claims ratios. 9M21 saw the decline in the group’s claims ratio to 67.4%.

• Its gross written premiums (GWP) growth slowed down in 3Q21. We believe this was due to the lockdowns imposed to manage the new wave of Covid-19. Selling activities of its general and life insurance business were impacted in the quarter. Allianz’s GWP growth slipped to 4.3% YoY for 9M21 compared to 8.6% YoY for 6M21.

• For 9M21, the general insurance business under AGIC’s GWP contracted by 0.6% YoY attributed to the slowdown in motor insurance. It was slightly below the domestic general insurance industry’s 1.1% YoY growth. Meanwhile, its agency and franchise channels contributed 57.9% and 28.0% of the GWP respectively. Contribution to AGIC’s GWP from its partnership with Pos Malaysia was 6.5% for 9M21 (9M20: 7.4%). Market share for the general insurance business remained robust at 13.1%.

• AGIC posted a stronger PBT (after consolidation adjustment) of RM322.7mil (+7.0% YoY) underpinned by higher net earned premium (+7.0% YoY) partially offset by higher net claims and management expenses. Underwriting profit for the general insurance business rose by 22.3% YoY for 9M21. AGIC recorded an improved combined ratio of 88.2% for 9M21, supported by lower commission and expense ratios. Motor claims ratio at 51.5% remained lower than the industry’s 54.2%.

• Meanwhile, PBT of the life insurance business under ALIM of RM132.4mil declined by 47.9% YoY for 9M21 largely due to fair of value losses on investments from higher interest rates. Its 9M21 GWP grew by 8.2% YoY supported by recurring premiums (+12.2% YoY). Meanwhile, growth of GWP for single premiums decreased by 7.8% YoY.

• Annualized new business premium (ANP) for life business grew by 32.6% YoY for 9M21, contributed in part by the lower base in 2020. It surpassed the life insurance industry’s 14.5% YoY growth. This was supported by growth in premiums from the agency (+33.0% YoY), bancassurance (+39.0% YoY) and employee benefits channels. By product, investment-linked ANP expanded by 42.2% YoY. Market share for life business rose moderately to 9.2% in 3Q21 vs. 9.0% in 2Q21.

• New business value for its life business expanded 28.1% YoY to RM212.5mil for 9M21. ANP growth for life business is envisaged to gradually increase the embedded value of ALIM. The easing of mobility restrictions and reopening of economy are poised to improve the group’s premium growth in 4Q21. This is in view of the lesser challenge for selling activities after lockdown measures have been eased.

Source: AmInvest Research - 25 Nov 2021