• BUY, new MYR16.40 TP from MYR16.60, 23% upside with c.5% yield. Allianz Malaysia’s 9M22 net profit of MYR306.5m missed our and Street expectations, on the back of elevated fair value losses from 1H22. Despite this, momentum in gross written premiums (GWP) growth remained strong, albeit slightly mitigated by higher claims. We continue to like the stock for its robust topline growth and undemanding valuation – ALLZ is trading at c.0.5x P/BV, below -1SD from its 5-year mean.

• Group results review. Group 9M22 net profit amounted to MYR306.5m (-5.4% YoY), against positive GWP growth of 9%. The YoY decrease mainly arose from elevated fair value losses (mostly from 1H22), on top of higher claims incurred (+37% YoY). 3Q22 GWP grew 7% YoY (QoQ: +3%) as a result of stronger contributions from both Allianz General (AGIC) and Allianz Life (ALIM) segments. 3Q22 net profit recovered 12% QoQ to MYR109m (YoY: -6%) after a fairly subdued 2Q22.

• AGIC – higher claims offset by strong topline performance. AGIC’s 9M22 GWP gained 12% YoY on higher premiums from the motor (+8% YoY) and personal accident (doubled YoY) insurance businesses. The segment’s claims ratio rose slightly by 0.8ppts to 58.6% due to an 8% rise in claims incurred, but well-controlled management expenses (-6% YoY) led to a marginally lower combined ratio of 87.8% (9M21: 88.3%). As a result, 9M22 PBT for the division stood at MYR332m, up 3% YoY.

• ALIM – fair value losses gradually softening. GWP for ALIM continued to grow encouragingly at 7.2%, owing to a robust rise in the take-up of higher-margin investment-linked products (+10%). Claims rose 35% on the back of pent-up demand for medical treatment, but the claims ratio fell to 66% (9M21: 74%) thanks partly to its positive topline performance. Fair value losses – while still a drag for 9M22 – appear to have softened, with the 3Q22 number at MYR113m (2Q22: MYR437m). As a result, PBT for the segment surged 700% QoQ to MYR66.4m (YoY: +19%).

• We trim FY22F earnings by 6% as we factor in greater fair value losses and a higher effective tax rate, but keep FY23-FY24 projections unchanged. Our SOP-derived TP drops to MYR16.40 (from MYR16.60) as a result, and bakes in a 4% ESG premium as per our in-house proprietary methodology. We maintain our BUY call on the stock, premised on its robust GWP growth and undemanding valuation, on top of an expected downward normalisation of claims as the pent-up effect wears off. However, we do flag the monsoon season in 4Q22 as a possible downside risk to both AGIC and ALIM claims.

• Key risks include weaker-than-expected premiums growth, higher-than- expected claims and potentially weakened sentiment from MFRS 17 adoption – although management has guided for a limited impact from this.

Source: RHB Research - 24 Nov 2022