Investment Highlights

• We maintain HOLD on Allianz Malaysia (Allianz) with a higher FV of RM17.70/share (previously: RM17.00/share), based on revised SOP valuation . This is after raising our valuation slightly for its life insurance business under ALM. Our FV reflects an unchanged neutral 3-star ESG rating.

• FY23 earnings of RM731mil increased by 19.1% YoY on the back of higher investment returns and a modest growth in insurance service results.

• FY23 net profit were within expectations coming in 2% above our estimate and 4% of consensus’. Hence, we tweaked our FY24F/25F earnings by +0.5%/+0.1% after fine-tuning our estimates on investment return and insurance revenue.

• On QoQ basis, 4Q23 net profit of RM194mil was slightly lower by 2.1%, attributed to a lower insurance service result, higher net insurance finance and other operating expenses, partially offset by stronger investment income.

• FY23 insurance service results increased by 2.9% YoY to RM817mil. This was contributed by higher insurance revenue, partially offset by increase in insurance service expenses from higher claims, net acquisition and administrative expenses.

• The group’s insurance revenue grew 11.8% YoY to RM4.9bil in FY23. This was attributed to an improvement in insurance revenue of the general insurance business under AGIC (+8% YoY) as premiums increased in the motor business. Also, it was contributed by life business under ALIM’s stronger insurance revenue of 17.1% YoY, supported by higher release of contractual service margin (CSM) and expected cashflows.

• Allianz’s gross written premium (GWP) accelerated to record a higher growth of 8.7% YoY in FY23 vs. 8.3% YoY in 9M23. AGIC’s growth in GWP picked up pace to 13.1% YoY, outpacing the industry’s 7.8% YoY while ALIM’s GWP moderated slightly to 5.2% YoY in FY23. 4Q23 saw an increase in AGIC’s market share to 14% vs. 13.4% in 3Q23.

• In terms of profitability, AGIC posted a stronger PBT (after consolidation adjustment) of RM556mil (+7.9% YoY). This was driven by higher insurance service results with growth in premiums from motor and net investment income. AGIC’s claims increased by 10.9% YoY to RM1.4bil in FY23. Claims ratio of AGIC inched higher to 59.4% in FY23 vs. 58.4% in FY22. This led to a marginal increase in AGIC’s combined ratio to 85.7% in FY23 compared to 85% in FY23.

• PBT of the life insurance business under ALIM increased by 8.9% YoY to RM411mil in FY23, contributed by higher net investment returns despite recording a subdued insurance service result. FY23 saw a flattish insurance service result for ALIM of RM362mil due to higher claims, acquisition and administrative expenses, offsetting an increase in insurance revenue.

• Year-to-date, gross contractual service margin (CSM) of the life business grew 10.8% or RM317mil to RM3.25bil. The increase was supported by higher new business value of RM477mil in FY23. RM433mil of CSM was released in FY23 (+17.5% YoY).

• Annualised new business premium (ANP) for life business rose by 14.6% YoY in FY23, higher than the industry’s 11.1% YoY growth. This was contributed by growth from all distribution channels (agency, bancassurance and employee benefits). Agency ANP grew 18% YoY. By products, ANP for IL products rose by 9.1% YoY.

• We continue to see the stock as fully valued with limited upside as prospects of growth in CSM have already been priced in.

Source: AmInvest Research - 27 Feb 2024