• Allianz saw a 3Q20 net profit of RM129.1m (-23.1% qoq), largely due to the absence of robust fair value gains. On a qoq basis, premium growth picked up for both the General and Life units. 9M20 results were within estimates.
• Based on management’s guidance, the 9M20 underlying net profit actually rose 14.2% yoy (instead of the reported 4.7% growth yoy), if the effects of fair value losses and the tax impact were stripped out.
• Maintain BUY, with 12-month Price Target of RM16.40 unchanged. Prospects continued to be underpinned by a recovery in business activities and its strong agency force and partnerships.

9M20 net profit rose 4.7% yoy although 3Q20 net profit declined 23% qoq

Allianz saw stronger operating revenue in 3Q20, which was up 7.9% yoy and 9% qoq, on the back of a recovery in gross earned premium at both its General and Life units during the RMCO period (breakdown in Figs. 4 and 5). Nonetheless, 3Q20 reported net profit declined 23% qoq and 9.6% yoy on the back of lower fair value gains (-78.5% qoq), higher claims (+53.7% qoq; higher medical and fire claims) and a higher net change in contract liabilities (+20% yoy). Management’s guidance on its underlying 9M20 net profit remained positive, with an estimated 14.2% yoy growth if the impact of interest rate changes on its investment portfolio and the tax impact (due to additional taxes on assessable investment income) were stripped out. For 9M20, Allianz continued to benefit from higher net earned premium growth (+8.2% yoy; General +8.7% yoy and Life +7.8% yoy), lower net claims and benefits paid (-8.8% yoy) and higher net investment results (+6.3% yoy) though these were offset by fair value losses and management expenses (+10.3% yoy).

Premium growth expected to stay resilient in 2020

Allianz’s business continued to stay resilient amidst a challenging industry, as proven by: i) year-to-date premium growth in the General segment (+9.2% yoy; driven by the recovery in auto sales and new Pos Malaysia tie-up), and ii) annualized new premium growth in the Life segment (3Q20: +13.5% yoy; +66% qoq) driven by its strong agency force and banca-partnership.

Maintain BUY, with PT unchanged at RM16.40

We reiterate our BUY rating on the stock, with an unchanged Price Target of RM16.40, based on these key assumptions: a 2021E P/BV target of 1.55x for its General operations and 2021E P/EV target of 1x for its Life operations. We maintain our earnings forecasts. Downside risks: i) high inflation costs; ii) theft and fraud cases; and iii) more competitive rates from peers.

Source: Affin Hwang Research - 27 Nov 2020