Investment Highlights

• We maintain our BUY call on Allianz Malaysia (Allianz) with a revised fair value (FV) of RM17.50/share (previously RM17.40/share) derived from SOP valuation. Our FY21/22 net profit has been revised by 4.6%/9.7% after tweaking our estimates for fair value gains/losses.

• 4Q20 net profit was RM144mil (+11.6% QoQ), supported by lower net claims which offset the decline in net earned premium (NEP), realised gains on disposal of securities and higher management expenses. 12M20 saw an improved net profit after tax of RM520mil (+5.7% YoY), underpinned largely by higher net earned premiums (+8.2% YoY) and lower net claims incurred. Cumulative earnings were within expectation, making up 102.8% of our forecast. Meanwhile, it was above street expectation, accounting for 109.0% of consensus estimates.

• The group’s combined ratio decreased to 100.9% in 12M20 largely on the improvement in net claims ratio to 72.5% while commission and management expense ratio remained steady at 15.3% and 13.2% respectively. Claims declined due to lower motor claims for general insurance business during the MCO.

• The group’s gross written premiums (GWP) expanded strongly by 7.8% YoY for 12M20 with a higher premium growth in Allianz General (AGIC) and Allianz Life (ALIM).

• For 12M20, AGIC’s GWP growth of 7.2% YoY outpaced the domestic general insurance industry’s -0.6% YoY, contributed by a stronger premium growth for motor insurance. AGIC’s premium growth from the agency and franchise business improved with the latter supported by its tie-up with Pos Malaysia.

• AGIC posted a stronger PBT (before consolidation adjustment) of RM432.1mil (+19.2% YoY) underpinned by higher net earned premium (+9.1 YoY%) and lower motor claims.

• Meanwhile, ALIM’s PBT (before consolidation adjustment) declined to RM308.7mil (-9.4% YoY) due to higher contractual liabilities from changes in interest rates (lower MGS yield) and provisions for additional claims. ALIM’s 12M20 GWP grew by 8.2% YoY. However, its annualized new business premium (ANP) contracted by 10.0% YoY vs. the life insurance industry’s -0.4% YoY. Face-to-face selling activities from the agency channel for life insurance were impacted by MCO restrictions.

• Meanwhile, ANP for bancassurance fell YoY while that of employee benefits was higher compared to the industry. New business value for life business shrank 7.7% YoY to RM239mil in 12MFY20. With the vaccination programme already commenced and potential further easing of MCO restrictions, ANP for life business is envisaged to gradually recover moving forward. This should improve the new business embedded value of ALIM.

• The group had earlier in Jan 2021 announced interim dividends of 58 sen/per ordinary shares (yield: 4.2%) and 69.6 sen per preference share (yield: 5.0%).

Source: AmInvest Research - 25 Feb 2021