We  maintain  NEUTRAL,  with  our  FV  adjusted  to  MYR11.50.  Allianz  is adopting  a  cautious  approach  and  opting  to  preserve  capital  for expansion.  Still,  we  see  it  likely  to  achieve  high  double-digit  topline growth  despite  new  challenges.  We  expect  its  general  insurance  (GI) unit  to  maintain  cost  efficiency,  while  its  life  insurance  (LI)  unit  will perform in line with its agency and bancassurance channel’s growth.

• Preserving capital.  Allianz’s briefing  was attended by a mix of analysts and fund managers. The key takeaways are that the company has opted to retain capital for expansion, as well as  lowered  its FY13 dividend  for ordinary shares  to  4%  (from  the  historical 10%).  The insurance industry is  one  that  requires  high  capital  to  protect  policyholders’  interest  and satisfy  the  regulatory  requirements  (ITCL)  to  provide  a  buffer  that  is above  the  supervisory  capital  level  of  130%.  This  move  is  a  sign  that Allianz  is  still  looking  to  achieve  double -digit  topline  growth  across  its general insurance (AGIC) and life insurance units (ALIM).
• Keeping to the same strategies. Both AGIC and ALIM recorded growth of 18% and 22% respectively  in  FY13  that are  superior to the industry’s. The GI industry grew 6.6% (in 3QCY13) while the LI industry shrank due to the shift in product mix. The company had made it clear that topline growth  is  not  a  key  focus;  rather  it  is  the  efficiency  of  the  distribution channels and cost management. The same strategies will apply in FY14. However,  we expect the company to roll out various initiatives to drive topline growth. ALIM currently has 7,500 agents, and is on track to reach 10k  agents  by  2015.  It  also  aims  to  reduce  its  reliance  on  its  agency force  to  75%  (from  86%)  by  2015,  via  more  activities  from  its bancassurance channels.  For  AGIC,  we  expect  it  to  stick  to  strategies that have worked well to bolster motor insurance.
• Maintain  NEUTRAL,  FV  tweaked  to  MYR11.50  (vs  MYR12)  as  we lower  our  FY14F/FY15F  EPS  by  5%/4%  -  in  line  with  Allianz’s  more cautious  stance.  The  group  sees  challenges  such  as  dampened consumer demand and hurdles in repricing its products due to regulatory requirements  and  the  impending  goods  and  services  tax  (GST).However,  we  believe  these  are  merely  small  hiccups  to  its  growth potential, which is  fundamentally  supported  by Malaysia’s low insurance penetration. Our new SOP-based FV is based on an unchanged 18x P/E for  its  GI  market  leadership,  and  1.2x  on  its  LI  embedded  value (including bancassurance).

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SWOT Analysis

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

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Source: RHB