Period  4Q13/12M13

Actual vs. Expectations The reported 12M13 net profit of RM201.4m is pretty much within our and consensus estimates of RM194m and RM205.7m, respectively, accounting for 96% and 98% respectively.

Dividends  Declared a 2nd interim single-tier NDPS of 52.0sen as opposed to 50.0sen in previous year. Coupled with the 1st interim NDPS of 18.0sen, the stock has delivered 70.0sen NDPS or 4% in net dividend yield. While this NDPS represents a growth rate of 8% and a payout of 77%, it is slightly below our NDPS estimate of 75.0sen. Hence, we have lowered our FY14 NDPS estimate to 81sen, from 86sen previously, based on a 80% payout.

Key Results Highlights

12M13 vs. 12M12

 YoY, the Group’s revenue gained 7.7% to RM1,119.0m compared to RM1,039.3m in 2012. The increase was in-line with the 7.6% growth in general insurance segment. Gross and net earned premium grew 7.6% and 6.2% YoY respectively. The lower growth in net earned premium was owing to higher reinsurance ratio of 41% (vs. FY12 and our expectation of 40%).

 Unlike 2012, the gross and net premium growth for 2013 was mainly driven by fire insurance. This segment contributed 35.6% and 36.0% to the gross (+13% YoY) and net (+14% YoY) earned premium in 2013 as opposed to 33.9% and 33.5% in 2012. In 2012, motor insurance was the major growth driver accounting for 26.7% (vs. 24.1% in 2013, -3% YoY) and 38.4% (vs. 34.2% in 2013, -5% YoY) to gross and net earned premium.

 Despite a decent set of top-line growth, the Group saw a stronger growth rate of 20.7% in its net profit. We understand that the better bottom-line performance was attributed to lower claims incurred ratio of 45.5% (to net earned premium) vis-àvis previous year’s ratio of 47.5%. Besides, better investment income (+8.1% YoY) arising from higher dividend and interest incomes is also a contributing factor for higher profitability.

4Q13 vs. 3Q13

 QoQ, the Group recorded a lower net earnings of RM52.4m vs. RM60.4m in 3Q13 (or -13.2% QoQ) despite its ability to record decent quarterly growth rates of 8.8% and 7.1% in its gross and net earned premium.

 The decrease in profitability was due mainly to dividend income received from PBBANK in 3Q13.

Outlook  The Group expects the insurance industry to become increasingly competitive, as the deadline for liberalisation draw closer. Further consolidation in the insurance sector is also expected to further drive up competition. Nevertheless, the Group is expected to continue its strong domestic showing via well planned marketing and well executed strategies. As such, the Group will continue to focus on its organic growth to increase its market share.

 Agency and financial institutions will remain to be their key distribution channels. As such, the Group will focus on building its agency network and continue to leverage on their partnership with PBBANK by using banassurance to expand their insurance business.

 We also understand that the Group will also continue to grow its broking and global partnership business.

Changes to Forecasts No change in our earnings estimates.

 We maintain our FY14 and FY15 net earnings estimates of RM224.0m and RM251.5m, respectively, which are pretty much in-line with consensus estimates of RM222.7m and RM255.0m.

Rating Maintain Market Perform even after our revision in target price.

Source: Kenanga