Allianz Malaysia’s (Allianz) reported another strong quarter in 4Q19, resulting in 2019 results coming in above Affin (by 6%) and consensus estimates (by 9.4%). 2019 net profit rose by 30% yoy, with the stronger performance driven by the Life business, underpinned mainly by robust fair value gains and better investment results as well as and higher contribution from the protection business. The Life segment also saw new business value growing at 29.6% yoy. On the other hand, the General unit saw better 2019 underwriting results (+46.7% yoy) due to lower net claims and higher reinsurance income. We reaffirm our BUY call on Allianz with a revised SOTP-based TP of RM18.00. Allianz had earlier announced a higher dividend of 65 sen for 2019 (on 10 Jan 2020) vs. a dividend of 40 sen in 2018.

Favourable Performance at Both Life and General Units

Allianz’s 2019 net profit came in at RM492.5mm (+30.6% yoy) and was above consensus and Affin’s estimates. The main drivers for the favourable 2019 performance were robust sale of the Life’s investment linked policies (with protection rider), fair value gains (at Life unit) and better investment income. Meanwhile, gross written premium (GWP) at the Group level saw a 9.3% growth yoy, underpinned mainly by the Life unit (+14.3% yoy) while the General saw marginal growth of 3.6% yoy. Qoq, 4Q19 pre-tax profit continued growing at 7.5% though net profit declined by 6.8% (due to higher taxation rate). Overall the net claims trend (including changes in contract liabilities) continued to trend lower qoq. For 2019, the Life unit (+66.7% yoy) accounted for circa 54% of PBT while the General unit (+13 yoy) accounted for 46% of PBT.

Earnings Revisions for 2020E-21E; Introducing 2022E Forecasts

We have revised our earnings forecasts for 2020E-21E by +18% and +11% respectively as we factored-in higher contribution from investment income and fixed income portfolio gains (driven by lower interest rate movements).

Reaffirm BUY Rating, Target Price Revised to RM18.00

We reaffirm our BUY rating and SOTP-based target price of RM18.00 (key assumptions: Target 2020E P/BV of 1.68x 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 Feb 2020