Allianz Malaysia (Allianz) reported weaker results for 1Q20 (net profit -19.6% yoy; -40.3% qoq), but we believe that 2Q20 will see a reversal of fair value losses that lead to a stronger bottomline subsequently. The results were within our expectation but below consensus. The General segment saw stronger GWP growth from the motor and fire classes, while the Life segment saw some mixed performance (with most new premium growth coming from the banca and employee benefits channel). Maintain HOLD with an unchanged SOTP-based TP of RM16.40. In our view, economic activities in the country will remain sluggish throughout 2020 due to industry headwinds, namely concern over a second wave of COVID-19 and new social-distancing practices.

Favourable Performance at Both Life and General Units

Allianz’s 1Q20 net profit came in at RM79.5m (-19.6% yoy and -40.3% qoq). The key dampeners were fair value losses at the Life unit. Overall, gross written premium (GWP) at the group level saw a 12.9% growth yoy, underpinned mainly by the Life unit (+13.8% yoy; driven by bancassurance and employee benefits channels) while the General segment saw a 12% yoy growth (driven by motor and fire classes). In terms of PBT, the Life unit (-66% yoy) accounted for circa 24% while the General unit (-13 yoy) accounted for 76%.

Earnings Forecast Revisions Were Made in Our Market Strategy Report

We recently raised our earnings forecasts for 2020-22 by 17.9%/31.6%/34.7% on revised expectations on net earned premium (NEP) growth and lower net claim assumptions. We expect NEP to be relatively flat in 2020, followed by 6% yoy and 4% yoy growth in 2021- 22E.

Reiterate HOLD, Target Price Unchanged at RM16.40

We Reaffirm Our HOLD Rating and SOTP-based Target Price of RM16.40

(key assumptions: target 2021E P/BV of 1.55x for its General operations and target 2021E P/EV of 1x for its Life operations). Downside/upside risks: i) high inflation costs; ii) theft and fraud cases; and iii) more competitive rates from peers.

Source: Affin Hwang Research - 17 Jun 2020