• Upgrade to BUY from Neutral, TP rises to MYR24.40 from MYR21.70, 20% upside with c.6% FY25F yield. We came away from Allianz Malaysia’s 3Q24 results briefing feeling assured of the group’s earnings prospects, underpinned by its sustained revenue growth and prudent cost management. We turn more positive on the counter, as we believe its defensive traits could provide investors with a safe haven in periods of market volatility.

• A defensive pick to tide through volatile times. ALLZ could provide investors with a shelter against the current volatile market climate, given its following defensive traits: i) It has a dominant presence in Malaysia, with the top market share in general insurance and fourth largest market share in life insurance; ii) its earnings stability is underpinned by continued topline growth and prudent cost management; iii) its decent dividend yields of 5-6% are among the highest in the non-bank financial institutions sector.

• Results briefing highlights. In 3Q24, ALLZ had recognised c.MYR88m in expenses related to FX adjustments on its investment-linked funds with exposure to the USD. Since the USD has re-strengthened to a certain extent against the MYR in QTD-4Q24, management expects some reversal of this expense in 4Q24. Elsewhere, Allianz Life Insurance (ALIM) customers appear to be receiving its repricing initiatives well, as the block persistency ratio gained 2ppts YoY to almost 88% (ie 88% of existing regular premium life insurance customers renew their policies with ALIM). Looking ahead, ALIM will closely monitor claims cases to mitigate further underwriting margin pressure. At the same time, the group will continue investing in recruitment and productivity measures to boost its agency force.

• Combined ratio to ease. Allianz General Insurance (AGIC) reported a higher combined ratio of 89% in 9M24, up 3ppts YoY. This was partly due to a low base, as AGIC has seen an upward normalisation of large-ticket claims from its fire and engineering customers YTD. In QTD-4Q24, management has not noted significant abnormalities in large-ticket claims, and it is also working with clients to reprice their policies – these are mostly customers with over 10 years of relationship with AGIC. Also note that the bulk of AGIC’s portfolio still comes from motor insurance (almost 70%), which has a greater claims frequency, but at much smaller ticket sizes per claim.

• Forecasts and TP. We trim FY24-26F earnings by 2% (for each year) post- 3Q24 results as we lift our combined ratio assumptions for AGIC. Nevertheless, there could be scope for an upside surprise on earnings – especially if new car sales, ALIM’s agency strategies, and co-payment measures turn out to be more robust than anticipated. We raise our TP to MYR24.40 from MYR21.70, as we now ascribe a higher target P/BV of 1.4x to AGIC. Our TP includes an unchanged 6% ESG premium, as ALLZ’s ESG score is three notches above the country median.

Source: RHB Securities Research - 26 Nov 2024