ALLZ’s 1HFY13 results were in line with  expectations,  at  52.0%  of  our and  53.0%  of  consensus  full-year  numbers.  GWP  surged  16.1%  in  line with  our  projections,  while  net  profit  growth  was  unimpressive  at  5% due  to  bancassurance  costs  and  tepid  investment  performance. Maintain BUY and MYR10.60 FV, which implies 14x FY14 EPS and 1.9x P/NTA on a fully-diluted basis (with preference shares).  

- Consistent,  healthy  underwriting  margins.  ALLZ’s  general  insurance (GI)  arm,  Allianz  General  Insurance  (AGIC),  recorded  strong  2QFY13 performance  on  the  back  of:  i)  double-digit  growth  in  gross  written premiums  (GWP)  of  18.8%  y-o-y  (-10.6%  q-o-q),  and  ii)  improved investment  income  (+14%  y-o-y,  +17.4%  q-o-q).  2Q  underwriting margins improved by 100bps y-o-y to 9.9%, despite declining by 130bps q-o-q due to better claims results in the preceding quarter. In particular, net 2Q claims ratio improved 40bps y-o-y to 58.1%, despite deteriorating by  210bps  q-o-q  for  the  same  reason.  Nevertheless,  efficient  claims management coupled with a low combined (claims and expense) ratio in 1QFY13  helped  deliver  overall  better  1HFY13  underwriting  margins  of 14.7% (vs 13.8% in 1HFY12).

- Allianz  Life  (ALIM)  performance.  ALLZ’s  life  insurance  (LI)  business also  grew  impressively  in  2QFY13,  with  GWP  growth  of  14.1%  y-o-y, (+4.4% q-o-q), as both single and recurring premiums continued to grow a robust 29.8% and 12.1% respectively. We believe the  momentum will be  sustained,  as  the  bancassurance  agreement  with  HSBC  contributed around 7.8% to total annualized new premium mix (vs 2.1% in 1HFY12, excluding  the  bancassurance  business,  which  commenced  only  in FY13).  

- Maintain  single-digit  growth  outlook.  We  make  no  changes  to  our forecasts.  While  ALLZ’s 1HFY13  investment  income  performed  weakly (at a mere 5.3% growth vs GWP’s 16.1%) due to lower fair value gains in investments, we deem both investment and technical results in line with our  FY13F  9.6%  earnings  growth  trajectory.  Also,  expenses  may continue  to  face  upside  pressure,  as  the  bancassurance  business requires  MYR6m  in  quarterly  expenses,  and  on  additional  amortization on intangibles  totaling MYR7.4m in 1HFY13 (1HFY12:  MYR5.7m).  Our FV is pegged to an unchanged 18x FY14 P/E for AGIC, and 1x P/EV on ALIM’s embedded value of MYR760m.

Source: RHB