Investment Highlights

• We maintain our BUY call on Allianz Malaysia (Allianz) with a higher FV of RM16.50/share from RM16.40/share based on a revised SOP valuation. This follows the slight increase in the valuation accorded for its general insurance business. Our FV reflects an unchanged neutral 3-star ESG rating.

• 12MFY22 core earnings exceeded expectations, coming in 22% above our estimate and 13% of consensus. The variance to our forecast was mainly due to lower than expected fair value losses on investments with a more favourable interest rate movement in the 4Q22.

• Hence, we raise our core earnings estimate for FY23F/24F by 19%/11% after tweaking higher our forecast for net investment income.

• 4QFY22 saw the group recording an improved core net profit of RM203mil (+61% QoQ). This was contributed by fair value gains on investments for the life business in 4QFY22 compared to a loss in 3QFY22 from lower interest rates, partially offset by an increase in net claims. The 10- year MGS yield declined by 40bps QoQ to 4.1%.

• For 12MFY22, the group’ core earnings decreased by 14% YoY to RM530mil after stripping out the one-off tax impact of Cukai Makmur. Net claims incurred rose by 9.1% YoY in 12MFY22.

• The group’s 12MFY22 operating revenue grew by 5.3% YoY, supported by higher gross earned premium (GEP) and investment income. Allianz’s 12MFY22 overall combined ratio increased slightly to 96.1% vs. 95.2% in 12MFY21, underpinned by higher net claims. Nevertheless, the ratio was lower than our expectation of 99.2% for the 12MFY22.

• The group’s claims ratio climbed to 69.6% in 12MFY22. The overall claims ratio of Allianz General Insurance Company (AGIC) of 57.7% was higher than the general insurance’s 53.7% but lower than the takaful industry’s ratio of 60.7%. As a key player in motor insurance with a commanding market share, AGIC’s motor claims ratio of 60.7% continued to be lower than the general insurance industry’s 65.3% and the takaful industry’s 72.3%.

• Gross written premium (GWP) growth continued to slowdown to 5.8% YoY in 12MFY22 vs. 9.4% YoY for 9MFY22. This was contributed by the slower pace in GWP growth of 9.2% YoY for its general insurance business and 3.3% YoY for life insurance business under Allianz Life Insurance Malaysia (ALIM). We continue to see a slow momentum for the topline of life insurance business due to the challenges of economic uncertainties and volatile markets.

• In terms of profitability, AGIC posted a stronger PBT (after consolidation adjustment) of RM463mil (+5.8% YoY). This was driven by an improved underwriting profit with better non-motor claims and lower management expenses.

• PBT of life insurance business under ALIM of RM287mil rose by 30.2% YoY for 12MFY22. This was attributed to higher net earned premium and lower fair value losses on investments, partially offset by an increase in net change in benefits, claims paid and management expenses.

• Annualised new business premium (ANP) for life business remained slow in tandem with the industry trend. 12MFY22 ANP fell by 3.8% YoY, better than the industry’s decline of 8.8% YoY. The decrease was largely attributable to lower ANP growth from the agency channel of 12% YoY while that for bancassurance rose by 21% YoY. ANP for investment-linked products has slowed down to -6.5% YoY for 12FYM22 compared to +3.6% YoY in 9MFY22. With the lower new business from agency channel, 12MFY22 saw a flattish new business value for life business of RM275mil (-0.1% YoY). Nevertheless, market share for life business has improved to 9.5% in 12MFY22 from 9% in 12MFY21.

• The stock remains deeply undervalued based on an FY23F P/BV of 0.5x and offers decent dividend yield of 5.3%.

• We continue to like Allianz due to the following reasons:
  i. AGIC has a commanding and stable market share of 13.3%, ranking no.1 in the general insurance industry. Hence, we continue to see that the group to be able to withstand pricing competition from the gradual liberalisation of fire and motor tariffs as well as the consolidation of players in the industry.
  ii. The group’s stronger focus in investment-linked (IL) products with protection riders will position its life insurance business to be less significantly impacted by FRS 17, implemented on 1 Jan 2023.
  iii. The diversified portfolio and delivery channels for general and life insurance business bodes well for topline growth as well as to increase life insurance’s new business value.

Source: AmInvest Research - 24 Feb 2023