Allianz Malaysia’s (Allianz) saw robust start for 1Q19, as net profit rose 13.4% yoy, with the stronger performance driven by the Life business. Results were broadly in-line with Affin’s and consensus estimates. Allianz Life saw higher pre-tax profit in 1Q19 (+66% yoy), driven primarily by its protection business (investment-linked), aside from fair value gains of its portfolio. Nonetheless, the General unit saw weaker underwriting results and gross written premium growth. We reaffirm our BUY call on Allianz with a SOTP-based TP of RM17.60.

Improved Performance at Life Cushions a Slightly Weaker General

Allianz’s 1Q19 net profit of RM98.9m (+13.4% yoy) was in-line with consensus and Affin’s estimates. Though results were weaker by 1.1% qoq, this was however seasonal, in our view. Allianz’s topline, as reflected by a gross written premium (GWP) growth of 4.2% yoy, saw a decline of 6.4% yoy at the General (motor insurance accounts for 61.2% of GWP, was down 7.4% yoy) while GWP at Life was up 15% yoy. Allianz’s Life business annualized new premiums growth of 8.4% yoy (at RM117.5m), was primarily driven by its bancassurance and employee benefits channels.

General and Life Segments PBT - Down 3.1% Yoy and 66% Yoy

The General division contributed 55.4% of the group’s PBT and was up down 3.1% yoy in 1Q19 largely due to lower GWP and an impairment for receivables. Meanwhile, Life contributed 44.6% to group PBT, and was up 66% yoy in 1Q19 on the back of sale of higher margin products (such as death benefits, which have been one of the key drivers).

Reaffirm BUY Rating and Target Price of RM17.60

We Reaffirm Our BUY Rating and SOTP-based Target Price 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 its 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 - 24 May 2019