ALLZ’s 9M13  earnings  beat  expectations, at 84% of RHB’s and  87% of consensus  estimates.  Group  premiums  rose  18%  on  stronger-thanexpected  topline  performance  at  the  general  insurance  (GI)  and  life insurance  (LI)  segments.  This  offset  the  weaker  GI  margins  and  LI investment.  Maintain  NEUTRAL  on  the  stock’s  outlook  and  our MYR10.70 FV, pending further guidance at today’s analyst briefing.

• GI  growth  resilient  despite  easing  margins.  The  general  insurance (GI)  arm,  Allianz  General  Insurance  (AGIC),  maintained  strong  growth momentum,  chalking  up  16%  growth  in  gross  written  premium  (GWP) and  a  22%  increase  in  underwriting  profits  YTD.  These  exceeded  our expectations as we had earlier expected a much softer 2H13, in line with management’s guidance.  We note that  the combined ratio inched up to 87% from  a low of 84% in 1Q13  due to a spike in commissions and net claims.  Nevertheless,  the  numbers  were  well  below  90%,  especially  in view of ALLZ’s  product mix.  Meanwhile, underwriting margins  stayed  at 14%, thanks to the superior performance achieved in 1H13.
• Surge  in  LI  premiums  offset  weaker  investment  income.  We  were pleasantly  surprised  by  the  performance  of  the  LI  arm,  Allianz  Life Insurance Malaysia (ALIM), which saw GWP climb 19% YTD, buoyed by a  surge  in  single  premiums  and  stable  growth  at  its  investment-linked business. In particular, its 3Q13 single premiums doubled to MYR83m vs a  quarter  earlier,  suggesting  stronger  performance  at  HSBC bancassurance. The HSBC  UniversalLegacy  is a single premium whole life  universal  life  plan  that  addresses  retirement  and  legacy  needs.  However,  its  LI  profit  was  weighed  down  by  high  expenses  relating  to new  distribution  channels  as  well  as  weak  investment  income  (2.7% yield vs 6% in 9M12) due to a fair value loss of MYR45m in 3Q13.
• Maintain  NEUTRAL.  Despite  the  stronger-than  expected  topline  and bottomline  growth,  we  remain  cautious  on  ALLZ’s  high  LI  agent concentration  of  86%  and  potentially  softer  premiums  growth  outlook. We  retain  our  forecasts  pending  the  analyst  briefing  today.  Our  SOPderived FV of MYR10.70 is  unchanged, based on 18x FY14F GI profits, premised  on  its  considerable  11%  market  share  in  a  fragmented industry,  superior  underwriting  margins  and  competent  management team, as well as 1x of ALIM’s FY14F embedded value of MYR760m.

Financial Exhibits

• In  our  current  assumptions,  we  expect ~14.5%  premiums  growth  but  a  moderate ~10.6%  earnings  growth  for  FY13,  given higher  bancassurance  expenses.  This channel largely commenced this year
• We  incorporate  MYR2.0m-3.0m  tax  savings following  losses  from  the  provisioning  of  the Malaysia  Motor  Insurance  Pool  (MMIP) claims  into  our  forecasts  for  GI  profits.  This tax relief is expected to be recognised either in 3Q or 4Q CY13. The net change in EPS is a 1.0% increase

SWOT Analysis

Company Profile
Allianz is primarily involved in the underwriting of general insurance, life insurance and investment holding

Recommendation Chart

Source: RHB