FY11 earnings came in within expectations, accounting for96.1% of our estimates largely due to higher gross earned premium and netinvestment income. Despite the strong competition and economic uncertainty, itwas able to retain its leading position in the general insurance industry,which reinforces our view that the company will remain profitable as it forgesahead. However, we are trimming our earnings forecast by 8.6% in anticipationof more MMIP losses and a slower 2012, but our FV is raised to RM6.97 as we roll-over our valuations to FY12.  BUY.

In line despite MMIPlosses.  Allianz recorded earningsthat were within our expectations, accounting for 96.1% of our estimates,despite its share of loss which amounted to RM10.0m arising from the MalaysianMotor Insurance Pool (MMIP) in 4QFY11. Both revenue and core net profit surgedby 9.7% and 18.1% y-o-y respectively, largely due to higher gross earnedpremium (+8.4% y-o-y) and net investment income which increased 18.2% y-o-y,buoyed by stronger coupon interest income (+25.6% y-oy) and dividend income(+40.1% y-o-y). The increase in gross earned premium was mainly contributed byits life insurance operations which expanded by 11.1% y-o-y and this was  largely due to the premium growth  from the agency distribution channel. Investmentincome was also mainly driven by the higher contribution from life insurance operationswhich surged by 28.9% y-o-y due to a higher investment asset base.  The overall claims ratio remained steady at62.8% compared to 62.9% in the previous year.

General insurance.  The higher PBT (+8.1% y-o-y) for its generalinsurance business was mainly underpinned by stronger gross written premium(+10.5% y-o-y), underwriting result (+20% y-o-y) and lower managementexpenses  (FY11: 17.0% vs FY10: 18.4%), thoughthe group recorded a slight dip in its net investment income for this segment (-5.2%y-o-y). The group's general insurance portfolio mix remained healthy, withmotor and non-motor segments making up 52% and 48% of the total portfolio.

Life insurance.  Surplus before tax surged 9.9% y-o-y  on the back of  higher gross written premium(+11.1% y-o-y) and stronger investment income (+18.5% y-o-y, due to realizedgains from the disposal of equities-linked securities). Surplus transfer fromlife fund to shareholders' fund increased by 20% y-o-y to RM18m, slightly belowour estimate of RM19.0m.

Maintain BUY withhigher FV of RM6.97. In anticipation of more potential losses from MMIP anda slower FY12, we are lowering our FY12 earnings forecast by 8.6%. Nonetheless,our fair value is raised from RM6.60 to RM6.97 as we rollover our valuations toFY12 based on the industry average PER of 15x for its general insurance andP/EV of 1x on an embedded value (EV) of RM580m for its life insurance.

Source: OSK188