Allianz Malaysia’s (AllianzM) 9M17 net profit declined 9.4% yoy mainly due to a substantial increase in the overall net claims (the life segment in particular in 3Q17) and a higher effective tax rate. The negative impact of the high claims could not be fully mitigated by an average gross written premium (GWP) growth of 2.9% yoy (comprising life and general) and a 13% yoy increase in the group’s 9M17 investment income. The 9M17 results was below our expectations due to our higher investment income assumption. Though we maintain a BUY rating on AllianzM at our current SOTPderived PT of RM16.30, our rating is under review.

9M17 Net Profit Down 9.4% Yoy Due to High Claims Cost

AllianzM’s 9M17 net profit declined 9.4% yoy as it was affected by: i) a substantial increase in the overall net claims, which was up 11.8% yoy (the life segment continues to be burdened with high medical claims cost) ii) a higher effective tax rate of 35% for 9M17 vs. 33% for 9M16; and iii) additional receivables impairment of RM30m on the general business. Excluding the provisions, the 9M17 core PBT would have been flat yoy. A robust 13% yoy growth in AllianzM’s investment income has been another boost to the 9M17 PBT (-6.8% yoy), however, we note that 3Q17 saw a qoq reversal as realized gains turned into a marginal loss while mark-tomarket gains also declined sharply qoq. AllianzM’s 9M17 net profit was below our expectations by 6% due to weaker 9M17 investment income. As such, we have revised down our 2017E-19E EPS by 9.3-10.5%. We maintain our 2017E-19E GWP growth assumptions of 5.2%, 5.7% and 6.9%.

General Segment Saw Lower PBT Yoy; Life Segment PBT Up Yoy

AllianzM’s general business saw a 19% yoy decline in 9M17 PBT on the back of a challenging industry as motor vehicle and property sales remain lacklustre while the overall underwriting results was 42% lower yoy (high claims, absence of MMIP reserve release, digital/marketing costs and provisions) but this was compensated by stronger growth in net investment income. The life business 9M17 PBT was up 26% yoy, as the negative underwriting results (-31% yoy) was compensated by a 29% yoy growth in investment and fair value gains. AllianzM’s 9M17 GWP growth of 2.9% yoy was supported by a +1.3% yoy growth from the general and a +4.6% yoy growth from the life segment.

Source: Affin Hwang Research - 23 Nov 2017