Investment Highlights

• We maintain HOLD on Allianz Malaysia (Allianz) with a higher FV of RM17.00/share (previously: RM16.80/share) based on revised SOP valuation (Exhibit 4) after raising our valuation slightly for its general insurance business under AGIC. Our FV reflects an unchanged neutral 3-star ESG rating.

• 9M23 net profit of RM537mil exceeded expectations accounting for 84.3% of our earlier full-year estimate and 106.8% of consensus projection. The variance to our forecast was due to higher-than-expected investment results.

• Hence, we raised FY23F/24F/25F earnings by 12.7%/9.4%/7.3% to reflect higher estimates on investment return and adjusted our assumptions for net expense from reinsurance.

• 9M23 earnings rose by 22% YoY on the back of higher investment returns and a marginal increase in insurance service results.

• 9M23 insurance service results increased by 2.9% YoY to RM639mil. This was contributed by higher insurance revenue, partially offset by the increase in insurance service expenses from higher claims, net acquisition, administrative expenses and reinsurance cost.

• The group’s insurance revenue grew 11.3% YoY to RM3.6bil in 9M23. This was supported by an improvement in insurance revenue of the general insurance business under AGIC (+7.7% YoY) as premiums rose in the motor business. Also, it was contributed by life business under ALIM’s insurance revenue increase of 16.2% YoY, supported by investment linked (IL) and employee benefit (EB) business.

• Allianz’s gross written premium (GWP) picked up pace to register a higher growth of 8.3% YoY in 9M23 vs. 4.5% YoY in 6M23. AGIC’s growth in GWP accelerated to 11.4% YoY, outpacing the industry’s 7.7% YoY while ALIM’s GWP expanded at a faster pace of 5.8% YoY. 3Q23 saw an increase in AGIC’s market share to 13.7% vs. 13.4% in 2Q23.

• On QoQ basis, 3Q23 net profit of RM198mil grew 18.7%, attributed to higher insurance service results and fair value gains from investments.

• In terms of profitability, AGIC posted a stronger 9MFY23 PBT (after consolidation adjustment) of RM405mil (+18.8% YoY). This was driven by higher insurance service results and fair value gains on investments. AGIC’s claims increased marginally by 2.1% YoY to RM1bil in 9M23. Claims ratio of AGIC inched higher to 59.4% in 9M23 vs. 59.2% in 9M22. Nevertheless, the net combined ratio for the general insurance business has held up at 85.7% in 9M23, attributed to a lower expense ratio.

• PBT of the life insurance business under ALIM increased modestly by 4% YoY to RM320mil in 9M23 contributed by higher net insurance finance expenses and investment returns. 9M23 saw lower insurance service results for ALIM by 5.9% YoY to RM307mil due to higher claims, acquisition and administrative expenses despite an increase in insurance revenue.

• Year-to-date, gross contractual service margin (CSM) of the life business grew 7.7% or RM224mil to RM3.16bil. This was an improvement compared to RM2.99bil in 6M23, supported by a higher new business value of RM313mil in 9M23. RM324mil of CSM was released in 9M23, registering an increase of 17.1% YoY.

• Annualised new business premium (ANP) for life business rose by 18.5% YoY in 9M23 compared to the industry’s 10.8% YoY growth. This was contributed by growth from all distribution channels (agency, bancassurance and employee benefits). Agency ANP grew 21.3% YoY. By products, ANP for IL products rose by 8.5% YoY.

• Year-to-date, the share price has performed well, rising by 26.3% and outperformed the FBM KLCI. We continue to see that the stock is fully valued with limited upside.

Source: AmInvest Research - 24 Nov 2023