At its 28 Aug briefing, ALLZ said it expects a weaker business outlook. This may see its current 18% general insurance (GI) growth moderate to our 14% target. Allianz Life (ALIM)’s performance is expected to pick up in  2H13,  as  the  re-pricing of  its medical products  completes and as its bancassurance gains momentum. Investment income is unlikely to see significant downside. At any rate, our forecast is already conservative. 

- AGIC expects moderation; ALIM sees better growth. Allianz General Insurance  (AGIC)’s  Management  expects  a  slight  moderation  in  its business  growth  given  the  weak  economic  outlook,  but  is  confident  of achieving at least 15% yearly gross written premiums  (GWP) growth by yearend. We retain our more conservative growth target of 13.5%. ALIM, on  the  other  hand,  expects  a  better  2H  as  its  1HFY13  business performance was hampered by a shift in portfolio, due to weak demand for  savings  insurance  and  the  effect  of  active  re-pricing  of  some  of  its medical products.

- We do not expect sizable tax relief. AGIC recognized some Malaysian Motor  Insurance  Pool  (MMIP)  provisioning  on  a  staggered  basis  per quarter.  We  understand  that  general  insurers  are  entitled  to  some  tax relief  this  year,  as  this  is  a  form  of  accumulated  losses.  However,  we decide to retain our tax rate assumptions at ~31% as we do not expect a sizable  MMIP  tax  relief.  The  group’s effective tax rate of 33% YTD includes  an  additional  8%  income  tax  on  the  assessable  investment income (net deductions) on the life insurance (LI) fund.

- Investment  income  intact.  While  there  is  some  impact  on  investment income performance in 1HFY13 due to fair value losses in investment on its LI fund, Management does not expect further significant downside in 2H. Nevertheless, YTD investment income already made up >50% of our full-year  forecast  and  we  believe  any  improvement  in  new  business premiums should support investment income growth.  

- Maintain BUY. Management also guided that its embedded value for LI is  MYR750-850m.  We  retain  our  forecasts  and  SOP  derived  FV  of MYR10.60, which is based on 18x GI FY14 earnings and 1x P/EV on LI embedded  value  (EV)  of  MYR760m,  which  is  at  the  lower  range  of Management’s guidance. We still like the stock for its consistent track record  of  superior  underwriting  margins.  We  believe  our  conservative forecasts  incorporate  the  weaker  business  outlook,  and  1HFY13  profit already made up 52% of our forecast.

Source: RHB