Allianz Malaysia’s (Allianz) saw another robust quarter in 4Q18 (net profit rose 15.3% yoy) while 2018 net profit of RM377.2m (+31% yoy) was driven by overall lower net benefits and claims and net earned premium growth of 6.4% yoy. 2018 results were above our and market expectations – Allianz General delivered higher underwriting profit in the absence of receivables impairment. Allianz Life saw higher contribution from the protection business (investmentlinked), which is primarily driven by its agency force. Maintain BUY on Allianz with a sum-of-the parts 12-month PT of RM17.60.

Better Underwriting Profit at General; Robust ANP Growth at Life

Allianz’s 2018 net profit of RM377.2m (+31% yoy) outperformed consensus and Affin’s estimate by 11.6%. The overall gross written premium (GWP) growth at the General segment was flat in 2018 (-0.7% yoy) with the motor insurance making up 63.4% of its GWP. Meanwhile, the life segment saw a 10.9% yoy growth in GWP, underpinned by its agency force, which has a strong focus on the investment-linked products (comprised 73.4% of annualized new premiums).

General and Life Segments Saw PBT Up 20.1% Yoy and 18.2% Yoy

The General division contributed 61% of the group’s PBT and was up 20.1% yoy. Meanwhile, Life contributed 39% to group PBT and was up 18.2% yoy in 2018. Better profits at General was driven by lower expense ratio (2018: 18.4% vs. 2017: 20.3%) while at Life, sale of higher margin products (such as death benefits) have been the key drivers.

Maintain BUY Rating, Price Target Unchanged at RM17.60

Maintain BUY at An Unchanged Sum-of-the-parts (SOTP) Price Target of RM17.60 (key assumptions: 1.7x 2019E P/BV target for its general operations and 1x 2019E P/EV for its life operations). We expect Allianz to see gradual improvement in 2019-21E 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. Downside risks: i) high inflation costs; ii) theft and fraud caes; iii) more competitive rates from peers; iv) adverse experience, or variance in embedded-value calculations.

Source: Affin Hwang Research - 22 Feb 2019