Investment Highlights

• We maintain our BUY call on Allianz Malaysia (Allianz) with a slightly higher fair value (FV) of RM17.90/share from RM17.80/share. In our SOP valuation, we have rolled forward to FY23F for the general insurance business, pegging it to PB multiple of 1.4x. Our FV reflects a neutral 3- star ESG rating.

• We lower our core earnings estimates for FY22F/23F by 13%/2%. This is after penciling in further fair value losses on investments with the interest rate continuing to rise.

• The group recorded an improved 1QFY22 core net profit of RM115mil (+6% YoY) after stripping out the one-off tax impact of Cukai Makmur. The stronger earnings were attributable to the increase in net earned premium (NEP) and lower fair value losses on investments from the life business partially offset by higher net claims.

• 1QFY22 core earnings were within our expectations, making up 20% of our FY22F net profit and 22% of street forecast.

• Group operating revenue grew 6% YoY in 1QFY22 supported by higher gross earned premium (GEP) and investment income. Allianz’s 1QFY22 combined ratio rose to 94.6% vs. 82% in 1QFY21 largely underpinned by higher claims ratio. 1QFY22 saw a rise in the group’s claims ratio to 68%. The overall claims ratio of Allianz General Insurance Company (AGIC) of 57.6% was higher than the general insurance ratio of 51.9% and and takaful industry’s 58.5%.

• Gross written premiums (GWP) growth continued to gain traction, rising to 9.5% YoY in 1QFY22. This was supported by the general insurance business under AGIC’s GWP which expanded by 11.8% YoY. AGIC agency channel recorded stronger personal accident and motor business. The general insurance subsidiary’s GWP surpassed the domestic general insurance industry’s growth of 6.5% YoY. Meanwhile, GWP of its life business under Allianz Life Insurance Malaysia (ALIM) rose 7.7% YoY in 1QFY22 supported by growth in premiums from all key distribution channels. 
  AGIC posted a stronger PBT (after consolidation adjustment) of RM102mil (+10% YoY) underpinned by higher net earned premium (+3.8% YoY) partially offset by an increase in management, net fee and commission expenses. Underwriting profit for the general insurance business climbed 21.5% YoY for 1QFY22. AGIC recorded an improved combined ratio of 88.9% in 1QFY22 on lower claims and expense ratios. Its motor claims ratio of 54.9% remained lower than the general insurance industry’s 61.2%.
• Meanwhile, PBT of the life insurance business under ALIM of RM67.7mil rose by >100% YoY in 1QFY22 largely attributed to lower fair of value losses on investments and higher NEP.
• Annualised new business premium (ANP) for its life business fell by 11% YoY in 1QFY22. This was lower than the contraction of 15.7% YoY of the life insurance industry. The decline was due to lower ANP growth from the agency channel of 26.9% YoY while that for bancassurance edged up by 26% YoY. ANP for investment-linked products slid by 7% YoY. This has resulted in a decline in new business value for the life business by 28.5% YoY to RM59mil in 1QFY22. Nevertheless, the market share for its life business continued to expand to 9.3%.

• The stock remains deeply undervalued based on FY23F P/BV of 0.5x. Dividend yields remain decent at 5.3% for FY22F and 5.5% for FY23F.

• We continue to like Allianz for its strong market share in the general and life insurance businesses. As the largest general insurer domestically, it is envisaged that the group will be able to withstand competition in the general insurance industry moving forward from further liberalisation of motor and fire tariffs. We do not expect the group’s life insurance business to be significantly impacted by FRS 17 which will be implemented on 1 Jan 2023. This is in view of ALIM’s stronger focus in investment-linked (IL) products which provide higher margins. Any stronger growth in new IL premiums ahead is poised to lift the life business’s embedded value and this will be positive for the stock’s valuation.

Source: AmInvest Research - 23 May 2022