Allianz Malaysia’s (AllianzM) 2017 net profit declined 7.7% yoy mainly due to a substantial increase in the overall claims. 2017 results came in above our expectation due to a stronger 4Q17, up 28.5% qoq (lower net claims and higher investment gains). The general segment saw an uptick in claims ratio arising from motor and flood claims while higher retention rate at the life segment also saw increased claims. Group GWP saw a 2.5% yoy growth in 2017. Maintain BUY on AllianzM with an unchanged PT of RM16.30. 2018E is expected to see a better earnings outlook due to absence of impairments, more investment-linked products and repricing of life’s policies.

2017 Net Profit -7.7% Yoy - High Claims and Management Expense

AllianzM’s 2017 net profit declined 7.7% yoy as it was affected by: i) a substantial increase in the overall net claims, which was up 14.8% yoy (due to higher retention rate at the life segment, medical claim cost inflation and high motor claims) ii) a higher effective tax rate of 34.1% for 2017 vs. 31% for 2016; and iii) additional receivables impairment of RM37.6m at the general business. Excluding the provisions, the 2017 core PBT would have grown by 4.0% yoy. Due to a better-than-expected 4Q17, AllianzM’s 2017 net profit was above our expectation by 6.3%. We maintain our 2018E-19E forecasts and introduced 2020E.

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

AllianzM’s general business saw a 16.7% yoy decline in 2017 PBT on the back of a challenging industry as motor vehicle and property sales remain lacklustre while the overall underwriting results was 39% lower yoy (high claims, absence of MMIP reserve release, digital costs, road-ranger programme and impairments). The life business 2017 PBT was up 25% yoy, as the negative underwriting results was compensated by a 13.7% yoy growth in investment and fair value gains.

Maintain BUY Rating, Price Target Unchanged at RM16.30

We maintain our BUY recommendation with an unchanged sum-of-the-parts (SOTP) Price Target of RM16.30 (1.73x 2018E P/BV for its general operations and 1x 2018E P/EV for its life operations). 2018E is expected to see a recovery in AllianzM’s earnings in the absence of huge receivables impairment, increased sale of the higher-margin investment linked products and a repricing exercise of the life/medical policies.

Source: Affin Hwang Research - 23 Feb 2018