1Q18 Results Improved Yoy

Allianz Malaysia’s (AllianzM) 1Q18 net profit jumped by 30% yoy on the back of stronger gross written premium growth (general +4.4% yoy; life +3.1% yoy) and lower management expenses while being supported by better investment results. 1Q18 results came in within our and market expectations. We expect AllianzM will see a better earnings outlook in 2018 due to an absence of impairments, the sale of higher-margin investment-linked products (recurring premium) and the repricing of the life-segment policies. Maintain BUY on AllianzM with a higher PT of RM17.60 (from RM16.30).

1Q Net Profit +30% Yoy – Stronger GWP, Lower Management Expense

AllianzM’s 1Q18 net profit rose by a robust 30% yoy (flat qoq) in the absence of receivables impairment, stronger overall gross written premium (GWP) growth, a lower net change in contract liabilities and better net investment results (given the robust equity market). Nonetheless, this was offset by higher net claims (given higher retention rate) and mark-to-market losses for its trading book. Overall results were within our and consensus estimates. We maintain our 2018-20E forecasts.

Both General and Life Segments Saw PBT Up 20% Yoy and 14.3% Yoy

AllianzM’s general business contributed the bulk of the group’s pre-tax profit, accounting for almost 70% while the life segment was at 30%. The general business’ pre-tax profit was RM88m in 1Q18 (+20% yoy) with higher underwriting profit from a lower expense ratio while GWP was up 4.4% yoy (driven by the motor segment). The life business 1Q18 PBT was up 14.3% yoy to RM41.5m on the back of robust net investment gains, though offset by a fair-value loss of its financial assets held-for-trading.

Maintain BUY Rating, Price Target Raised to RM17.60

We maintain our BUY and raise our sum-of-the-parts (SOTP) Price Target from RM16.30 to RM17.60 as we shift our valuation to CY19 (key assumptions: 1.7x 2019E P/BV target for its general operations and 1x 2019E P/EV for its life operations). We expect AllianzM will see a recovery in its 2018-20E earnings in the absence of any huge receivables impairment, increased sale of higher-margin investment-linked products and a repricing exercise of the life/medical policies.

Source: Affin Hwang Research - 30 May 2018