• Keep BUY and MYR16.40 TP, 18% upside with c.5% FY23F yield. Allianz Malaysia’s (AMB) FY22 net profit of MYR473m beat our estimate, but met the consensus forecast. Key highlights: Robust net earned premiums (NEP) growth of 6% YoY, along with substantial marked-to-market gains for Allianz Life (ALIM) in 4Q22. While claims are expected to remain elevated across the industry, we continue to like the stock for its strong topline growth and undemanding valuation – it is trading at c.0.5x P/BV, below -1SD from the mean.

• Group results review. AMB recorded a full-year net profit of MYR472.8m (-1.2% YoY), beating our estimates. The variance mainly arose from lower- than-expected fair value losses, as there was a substantial fair value gain of MYR317.7m in 4Q. Net earned premiums (NEP) added 6% YoY, thanks to robust contributions from both Allianz General (AGIC) and ALIM. Claims at the group level remained elevated post-reopening of the economy, pushing the combined ratio to 96.1% from 95.2% in FY21.

• AGIC – strong topline, claims on the rise. AGIC’s FY22 GWP gained 9% YoY on higher premiums from motor (+5% YoY) and personal accident (doubled YoY) businesses. Claims surged 11% YoY – in line with an upward normalisation across the industry – but well-controlled management expenses (-2% YoY) led to a lower combined ratio of 87.3% (AGIC FY21: 87.8%, FY22 general insurance industry: 88.8%). Overall, segment PBT grew by 6% YoY to MYR462.6m.

• ALIM – fair value turnaround offset surging claims. Gross written premiums for ALIM reached a record high of MYR3.37bn (+3% YoY) in FY22, albeit dragged down by a significant 32% YoY increase in claims. However, the segment recorded a fair value gain of MYR318m in 4Q, mitigating the losses incurred in 1H and narrowing the full-year loss to MYR379m (-12% YoY). The decent topline growth and fair value turnaround was sufficient to push ALIM’s PBT up 30% YoY – a stellar year, all things considered.

• We make no changes to our earnings forecasts as we await the analyst briefing later today. Our SOP-derived TP remains at MYR16.40, and includes a 4% ESG premium as per our in-house proprietary methodology. We maintain our BUY call, premised on robust premiums growth and efficient ratio management, along with its undemanding valuation of c.0.5x P/BV (below -1SD from mean). However, we do flag the continued upward normalisation of both general and life claims as a key risk – although this should impact all players within the insurance industry.

• Key downside risks to our call include weaker-than-expected premiums growth, elevated claims and weakened sentiment arising from the adoption of Malaysia Financial Reporting Standards 17 (MFRS17), although management has guided for limited financial impact from this.

Source: RHB Research - 24 Feb 2023