In  line.  Allianz's FY12 core earnings of RM203.4m were in line, representing 101.6% and 97.9%  of  our  and  consensus  estimates  respectively.  Note  that  this  excludes  a  one-off reversal  of  over-provision  tax  from  FY11  amounting  to  about  RM4.2m,  which  if  included, would  have  boosted  Allianz's  earnings  to  RM207.6m.  The  gross  premiums  growth  in  its general insurance (GI) and life insurance (LI) segments came in at 14.4% and 14.5% y-o-y respectively, exceeding the growth figures for FY11.

ROE ticks up to 13.1%. Allianz's 13.1% ROE, excluding the non-participating surplus fund, was  higher  than  FY10,  beating  its  target  for  12%.  This  was  partially  attributed  to  the recognition  of  a  life  non-participating  surplus  as  earnings  amounting  to  RM51.1m  (vs
RM43.9m  in  FY11).  If  the  non-par  surplus  fund  was  accounted  for,  its  ROE  would  have stood  at  10.7%. We  note  that  the  company's  actuary-recommended  surplus  transfer  from the  life  non-par  fund  to  its  shareholders'  funds  for  FY12  was  a  lower  RM8.4m  vs  the RM18m  recorded  in  FY11.  Hence,  Allianz  may  need  to  retain  a  larger  surplus  for  its business expansion plans.

Changes  in  our  forecasts.  As  part  of  our  in-house  streamlining  of  coverage,  we  are revamping  our  model  and  are  incorporating  the  portion  of  earnings  recognized  from  the non-participating  surplus  as  part  of  our  core  net  profit  assumption.  That  said,  we  are revising upwards our FY13 core earnings by 7.7% and introducing our forecasts for FY14. The  company  will  hold  a  results  briefing  today.  The  stock's potential  share  re-rating catalysts are more clarity on new growth drivers rising from the utilization of bancassurance channels as well as the potential roll-out of new products.

ROE rises to 13.1%. Allianz's ROE at 13.1%, excluding the non-participating surplus fund, was  higher  than  FY10,  exceeding  its  target  for  12%.  This  was  partially  attributed  to  the recognition  of  a  life  non-participating  surplus  amounting  to  RM51.1m  as  earnings  vs RM43.9m  in  FY11.  However,  we  note  that  the  company  had  lowered  the  surplus  transfer from  its  life  non-par  fund  to  its  shareholders'  funds  for  FY12  as  recommended  by  its appointed  actuary  (FY12:  RM8.4m  vs  RM18m  for  FY11).  Including  in  the  non-par  surplus fund, Allianz's ROE would have come in at 10.7%. Hence, the company may need to retain a  bigger  surplus  to  support  its  business  expansion.  In  December  2012,  the  company entered into a RM54.3m five-year loan facility with Allianz SE to fund its expansion plans, including the cost of a region-wide bancassurance agreement with HSBC.

Dividend of 6.5 sen. Allianz has announced a final DPS of 6.5 sen as well as a preference share dividend (ICPS) of 7.8 sen per ICPS. The dividend yield, based on the current share price, is <1%.

Spectacular  showing  from  general  insurance.  Allianz's  GI  division  recorded  an impressive  22.9%  jump  in  underwriting  profit  and  a  14.0%  increase  in  net  investment income.  Its  overall  combined  ratio  improved  2.0ppts  to  87.7%  y-o-y,  mainly  due  to  a controlled claims ratio, which improved by 3.5ppts, and an improvement in the commission ratio by 1.2ppts. This was, however, partially offset by the rise in its management expenses ratio  by  2.7ppts  to  19.7%.  We  believe  the  motor  quota-sharing  agreement  had  been effective  in  boosting  premiums  growth  to  above-industry  levels  given  that  the  motor segment  still  comprises  the  largest  portion  of  Allianz  General's  business  at  54%  of  the company's  current  portfolio.  GI's investment  performance  was  largely  intact,  with  a  pure investment yield of 3.8%. Allianz General had allocated a higher portion of investments into fixed-income  instruments,  as  evidenced  by  the  59.0%  of  its  investment  portfolio  having been allocated for government bonds, 34.0% for corporate bonds and the remaining 7% for deposits.

Life  insurance  posts  robust  new  business  sales  in  4Q.  Allianz's 14.4% LI premiums growth  was  bolstered  by  a  strong  growth  of  11.8%  in  annualized  new  premiums  (ANP). This  growth  far  exceeds  the  mere  2.2%  growth  in  the life insurance industry's total new business as reported by Life Insurance Association of Malaysia (LIAM). We noted that 4Q alone  saw  ANP  come  in  at  an  impressive  RM103.2m  vs  an  average  of  RM64m  in  the preceding  three  quarters  and  MYR66m  average  in  FY11's  financial  quarters.  Once  again, its agents were the main driving force for the new business, contributing as much as 94.1% to ANP.

4Q  ANP  of  traditional  products  rise.  That  said,  the  ANP  contributed  by  agents  alone grew  as much as 13%  y-o-y. However,  we  were  surprised  to  see  that  part  of  the  boost  in 4Q's new business came from traditional products, which at RM59m was more than twice the average ANP of RM30m in the preceding quarters. New business from the investment-linked  (IL)  segment  contributed  by  agents was  also  boosted  to  RM40.2m,  although  the increase was less pronounced than that for traditional products. Given the performance of its  traditional  products'  sales  by  its  agents,  we  believe  Allianz  Life  may  have  been  well-prepared  to  equip  its  agents  with  the necessary  skills  and  is  on  its  path  to  fully  roll  out potential new products and capture segments catered to savings and retirement needs by mid-2013.

Changes  to  our  forecasts.  As  part  of  our  internal  streamlining,  we  are  revamping  our model and now include the earnings recognized from the non-participating surplus into our core  net  profit  assumption.  That  said,  we  are  lifting  our  FY13  core  earnings  by  7.7%  and introduce  our  FY14  forecasts.  The  company  will  hold  a  results  briefing  today.  The stock's potential share re-rating catalysts are more clarity on new growth drivers from the utilization of bancassurance channels, as well as the rollout of new products. 

Source: OSK