Allianz’s  9M14  earnings  of  MYR225m  was  in  line  and  met  76%  of  our FY14F  forecasts,  buoyed  by  AGIC’s  double-digit  earned  premium growth and  underwriting margin of 16% (above industry’s 13%), ALIM’s strong  investment  performance  and  higher  renewal  premium.  We upgrade to BUY with an unchanged SOP TP of MYR13.50 (13% upside). Valuations appear attractive again due to the recent retracement. 

Profit  (+18%  YoY  growth)  in  line.  Profits  were  supported  by  general insurance’s  (GI) 17% net earned premium growth  and 19% underwriting (UW) profit growth  from its subsidiary Allianz General Insurance (AGIC), and  favourable  claims  ratio  from  investment-linked  business  recorded from its life insurance (LI) unit, Allianz Life Insurance Malaysia (ALIM). 

GI  UW  margins  stable.  AGIC  recorded  a  17%  rise  in  net  premium despite  an  8%  growth  on  gross  premium,  due  to  the  group’s  higher retention strategy (we estimate YTD retention ratio  was 69%, vs 9M13’s 64%). The combined (claims + expense) ratio  was relatively unchanged at  86%  vs  9M13,  demonstrating  the  group’s  consistent  track  record  to manage its margins,  albeit normalised from a multi-year low of  80% in 1Q14.  This  is  in  line  with  our  86-87%  assumption.  AGIC’s  motor premium  exposure  is  relatively  unchanged  at  60%  of  total  portfolio.Investment grew 12% along with asset growth, with yields at 3.8%.

LI  performance.  ALIM  charted  a  strong  20%  growth  in  gross  written premium (GWP), mainly due to higher renewal premium that offsets the flat  growth  in  annualised  new  business  premiums  (ANP)  that  was affected  by  the  softening  of  traditional  business.  ALIM  breached  the 7,000  barrier  with  its  agency  force  now  standing   at  7,088  agents,  vs 6,918  in  1Q14  and  6,532  in  3Q14  –  but  still  a  long  way  to  its  10,000target by FY15. Following the successful sale of HSBC bancassurance products  since  4Q13,  bancassurance  contributed  15%  (from  3%  two years ago)  to  ANP channel mix. Agency investment-linked (IL) business recorded 26% in ANP growth  and now accounts for 77% of agency ANP vs traditional. Investment yields surged to 6.1% due to fair value gains. 

Upgrade to BUY with an unchanged SOP TP at  MYR13.50,  based on 16x FY15F GI profits and 1.2x FY15F  LI embedded value of MYR1.1bn, as the share price retracement by 5% in the past three months offers  a buying  opportunity.  We  believe  the  fundamentals  remain  unchanged given  consistent  management’s  track  record.  We  continue  to  like  its strategies  to  solidify  its  market  position  upon  2016’s  detariffication environment. We  retain  our earnings forecasts  pending information from its analyst briefing today.

Source: RHB