We expect Allianz to post softer 2H13 earnings due to: i) Allianz General Insurance (AGIC)’s moderating topline growth in 2H13 vs 1H13’s 18.8%, and ii) upfront costs for Allianz Life Insurance (ALIM)’s bancassurance tie-up, which will be mildly dilutive in FY13. We downgrade the stock to NEUTRAL  (from  BUY),  as  its  recent  share  price  strength  means  that valuations now appear fair, in our view.    

- Softer  2H13  premiums  growth  for  AGIC.  AGIC  chalked  up  strong 18.8% y-o-y premiums growth in 1H13. We believe this was on the back of  more  dealer  and  vehicle  franchiser  tie-ups,  leading  to  increased market  share  in  motor  premiums  (>25.0%  growth  YTD,  representing 58.0%  of  its  total  portfolio).  However,  management  expects  general insurance  (GI)  premiums  growth  to  moderate  in  2H13  due  to  the  softer economic  outlook.  Given  the  growth  thus  far,  however,  we  expect AGIC’s FY13F growth of 13.5% to outpace the industry’s expected  5.0-6.0% annual growth. AGIC’s profitability remains resilient, given its track record of consistent healthy margins.

- ALIM – risks. We expect ALIM’s bancassurance tie-up with HSBC to be mildly  earnings-dilutive  for  this  year,  mainly  due  to  bancassurance expenses of MYR6m per quarter. FY14 is expected to be the breakeven year.  We  have  factored  in  these  expenses  in  our  model.  We  believe consumers  are  cautious  in  the  near  term  amid  current  economic conditions  and  we  are  also  mindful  of  the  intensifying  competition,  with new brands like SunLife entering the market.   

- ALIM – rewards. However, over the longer term (the HSBC tie-up is for 10 years), we expect the bancassurance channel to contribute positively to  earnings,  thanks  to:  i)  economies  of  scale,  ii)  access  to  a  enlarged customer  base,  and  iii)  the  lower  cost  of  operations.  We  have  factored this  into  our  16.0%  FY14F  forecast  of  its  life  insurance  (LI)  premiums growth  (YTD:  14.1%).  Nevertheless,  should  it  perform  stronger  than expected, we see a potential LI re-rating to 1.2x P/EV (from 1.0x), which may lift our FV further to (at least) MYR11.20.  

- FV  nudged  up  to  MYR10.70.  We  tweak  FY13F/14F  EPS  upwards  by 1.0%, as we incorporate a MYR2m-3m tax relief expected in 2H13 (see page  2).  This  lifts  our  FV  to  MYR10.70  (from  MYR10.60).That  said,  we downgrade the stock to  NEUTRAL (from Buy), as its recent share price strength means valuations, at this juncture, appear fair in our view.

Source: RHB