We believe Allianz Malaysia's share price run-up is justified as it has been trading below its historical mean diluted P/E and P/NTA since 2009. We still like the company's strong fundamentals and upgrade our FV to MYR9.09 from MYR8.02 previously, on expectations of more conservative surplus transfers from its non-participating reserves as well as the growth prospects of its life insurance business. However, we also believe that the stock is now fairly valued. Maintain NEUTRAL.

Catching up to sector valuation. Allianz Malaysia's share price has surged by 18% since our last report in February. We believe the rise is justified given the company's leading market position in general insurance (GI) and exposure to the life insurance (LI) business. It had been trading at valuations below the sector’s average and its historical mean since 2009. The stock is currently trading slightly above its mean P/NTA (at a current P/NTA of 1.78x) and its mean P/E (at a current 13.5x P/E).

Fundamentals intact. We have confidence in Allianz's agents’ track record, underwriting profitability as well as its resilience against regulatory risks. In addition, its new bancassurance business’ tie-in with HSBC could provide further upside surprises. However, based on our analysis, its stock is fairly valued as the share price has caught up to its ROE which is forecast to be 12.8% vs our implied forward P/NTA of 1.60x. The high ROE is partly due to the company's ability to transfer non-participating surplus to its shareholders' funds, although our forecasts remain conservative given the company’s capital commitments to bancassurance.

Upgrade FV, Maintain NEUTRAL. We made minor upward adjustments of 1%-3% to our FY13/FY14 net profit and diluted EPS forecasts, as we tweaked our historical numbers following the release of the company's annual audited financials. We roll over our FV to MYR9.09, pegged to a 16x 12-month forward P/E of its GI business and a P/EV of 1x on LI's forward embedded value of MYR750m.

Source: RHB