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Allianz Malaysia Bhd
(March 2, RM12.34)
Maintain buy call with an unchanged target price (TP) of RM13.50:
Allianz’s financial year ended Dec 31, 2014 (FY14), earnings met 100% of our forecasts, anchored by above-industry premium growth, Allianz Global Investors Capital LLC’s (AGIC) underwriting margin of 13% and Allianz Life Insurance Malaysia Bhd’s (ALIM) strong investment performance despite market volatility. Maintain “buy”, with our sum-of-parts-based TP still at RM13.50 (10% upside). 

We continue to like the insurer’s track record, the maturity of its life insurance business and its strategies to tackle industry detariffication.

FY14 profit of RM296 million (24% year-on-year growth) is in line, supported by general insurance’s (GI) 25% net earned premium growth and 27% underwriting profit growth from subsidiary AGIC, and strong 15% premium growth from its life insurance unit, ALIM, while its investment result was resilient amid the market volatility.

The leaner and lower risk GI portfolio allowed AGIC to adopt a higher retention strategy and record above-industry earned premium growth. 

The combined (claims and expense) ratio improved to 87% from 88.3% in FY13, as its claims ratio improved by the same basis points to 59%, demonstrating the group’s consistent track record to manage its margins. 

This is in line with our 86% to 87% assumption. AGIC’s motor premium exposure is relatively unchanged, at 60% of its total portfolio. Yields from its low-risk investment were unchanged at 3.9%.

ALIM charted a strong 15% growth in gross written premiums, mainly due to higher renewal premiums that offset the flat 5% growth in its annualised new premiums (ANP) affected by the softening of its traditional business. 

ALIM breached the 8,000-man barrier, with an agency force now at 8,720 versus 6,918 in the first quarter of FY14 (1QFY14), but this is still a long way to its 10,000 target by FY15. 

Following the successful sale of HSBC bancassurance products since 4QFY13, bancassurance now contributes 12% (from 3% two years ago) of its ANP channel mix. 

Its investment-linked business remains the star performer as it recorded 26% in ANP growth.

Our FY15/FY16 earnings are unchanged pending updates from the management’s briefing. 

We factored in moderated premium growth and a potential cost upside due infrastructure upgrades. 

We like AGIC’s leading market position (12.4% GI market share) and Allianz’s long-term strategies to overcome competition despite the softening consumer sentiment and industry detariffication. — RHB Research, March 2

 

This article first appeared in The Edge Financial Daily, on March 3, 2015.

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