Investment Highlights

• We downgrade our call on Allianz Malaysia (Allianz) from BUY to HOLD with a slightly higher FV of RM16.80/share (RM16.70/share previously) based on revised SOP valuation. Our FV reflects an unchanged neutral 3-star ESG rating.

• We make no changes to our earnings forecast as cumulative earnings were within expectations, accounting for 53.2% of our FY23F net profit and 55.5% of consensus.

• 6MFY23 earnings of RM339mil rose by 12.9% YoY, contributed by higher investment returns which offset a decline in insurance service result.

• Insurance service results at group level decreased by 8% YoY to RM430mil in 6MFY23. This was contributed by higher insurance expenses with an increase in claims, acquisition and administration expenses.

• The group’s insurance revenue grew by 8.4% YoY in 6MFY23. This was supported by an improvement in the insurance revenue of the general insurance business under Allianz General Insurance Company (AGIC) (+7.4% YoY) and life business under Allianz Life Insurance Malaysia (ALIM) (+9.8% YoY).

• Allianz’s gross written premium (GWP) grew by 4.5% YoY in 6MFY23. AGIC’s GWP grew 7.6% YoY while ALIM’s GWP expanded by a modest 2% YoY, contributed by growth in agency and employee benefit business. AGIC’s GWP growth would have been 12% YoY, outpacing the industry’s 8% YoY growth if premium contributions from the Perlindungan Tenang vouchers in the previous year had been excluded.

• 2QFY23 core earnings of RM167mil declined by 3.5% QoQ attributed to a lower insurance service result from an increase in insurance service expenses. Also, it was contributed by a drop in net gains on FVTPL investments.

• In terms of profitability, AGIC posted a stronger 1HFY23 PBT (after consolidation adjustment) of RM264mil (+17.9% YoY). This was driven by higher insurance service results and fair value gains on investments. AGIC’s claims declined by 1.5% YoY to RM627mil in 6MFY23. Claims ratio of AGIC in 6MFY23 rose marginally to 59.8% vs. 58.3% in 6MFY22. Nevertheless, the net combined ratio for the general insurance segment has held up at 85.7% in 6MFY23 attributed to a lower expense ratio. AGIC’s market share remained stable at 13.4% as end of 2QFY23.

• PBT of the life insurance business under ALIM of RM97mil decreased by 10.4% YoY in 6MFY23, contributed by higher claims, acquisition and administration expenses coupled with an increase in net insurance finance expenses (>100%). 6MFY23 saw a normalisation of claims from investment-linked protection business.

• Year-to-date, the gross contractual service margin (CSM) of the life business segment grew by 2.1% or RM61.8mil to RM2.99bil. RM191mil of the CSM was released in 6MFY23 (+4.2% YoY) and this was slightly higher than the increase in new business value of RM181mil.

• Annualised new business premium (ANP) for life business rose by 6% YoY in 6MFY23 compared to the industry’s 6.9% YoY growth. This was contributed by growth in bancassurance and employee benefit business. Meanwhile, Agency ANP for investment linked products grew 17.5% YoY.

• Year-to-date, the share price has performed well, rising by 24.3% and outperforming the FBM KLCI. We now see limited upside for the stock with an expected total return of less than 15%.

Source: AmInvest Research - 24 Aug 2023