Allianz Malaysia’s (Allianz) reported another strong quarter in 3Q19, with the 9M19 results coming in above Affin and consensus estimates. 9M19 net profit rose by 30% yoy, driven by the Life business, underpinned mainly by better investment results (from fair value gains) and higher contribution from the protection business. The Life segment also saw new business value growing at 32.4% yoy. On the other hand, the General unit saw 9M19 underwriting results decline by 6.4% yoy due to higher management expenses and a decline in net earned premium (as more premiums are ceded out). We raise our FY19E core EPS by 12.7% to account for the better investment results. We reaffirm our BUY call on Allianz with an unchanged SOTP-based TP of RM17.80.

Favourable Investment Results at Life Division Drive Up Profits

Allianz’s 9M19 net profit of RM359.4m (+30% yoy) was above consensus and Affin’s estimates due to better investment income, fair value gains and robust sale of the Life’s investment linked policies (with protection rider). Meanwhile, the gross written premium (GWP) growth at the General unit was relatively flat yoy for 9M19, largely due to lower sale of fire and motor policies. Qoq, results continued improving (+21.4%) on the back of better investment results for both the Life and General segments, while stronger topline growth (net earned premium) was seen at the Life unit. For 9M19, the Life unit accounted for 53% of the group’s PBT as it rose 114% yoy, while the General unit’s PBT was flat yoy (~47% of group PBT).

Earnings Revisions of 12.7% for 2019E

Subsequent to another strong quarter with favourable investment income and results, we raise our 2019E’s net profit by 12.7% to RM463.7m while maintaining our forecasts for 2020E-21E.

Reaffirm BUY Rating and Target Price of RM17.80

We reaffirm our BUY rating and SOTP-based target price of RM17.80 (key assumptions: Target 2020E P/BV of 1.7x for its General operations and target 2020E P/EV of 1x for its Life operations). Downside risks: i) high inflation costs; ii) theft and fraud caes; iii) more competitive rates from peers; iv) adverse experience.

Source: Affin Hwang Research - 28 Nov 2019