- Maintain BUY with a new MYR16.60 TP from MYR17.90, 28% upside and c.5% yield. Following the analysts’ briefing held by Allianz Malaysia (AMB) last Thursday, we are reassured on the strong business fundamentals that lie behind the one-off dip in Allianz Life (ALIM) profits. We adjust our earnings for FY22F-24F to account for YTD performance. The adoption of MFRS 17 should pose no significant negative risk to AMB, but we encourage investors to look beyond the anticipated lower reported profits post-implementation.
- Allianz General (AGIC) – beneficiary of strong auto sales. Despite AGIC recording an 11% YoY increase in motor insurance sales in 2Q22, the QoQ drop (-13%) largely came from lower auto industry sales as a result of supply chain bottlenecks. The June car purchase frenzy (pre-SST exemption expiry), along with fulfilment of the backlog of earlier orders, should help drive motor insurance sales in the coming quarters. Management guides that AGIC underwrites c.40% of new car sales in Malaysia.
- ALIM – upwards from here. Recall that in 2Q22, ALIM recorded a PBT of MYR8m, ie down 91% YoY, from significant fair value losses of MYR437m. At the same time, claims spiked 34% YoY in 1H22 owing to the pent-up effect, as policyholders had deferred their less urgent medical treatments during the lockdown period in 1H21. We expect the segment’s bottom line to improve in 2H22, following the rebound of bond and equity markets, as well as a normalisation of claims. At the same time, the 15-year extension of its bancassurance contract with HSBC Malaysia should allow the strong top-line momentum to continue.
- Unwavered by the MFRS 17 implementation. Guidance from management indicates that AMB shouldn’t feel significant negative effects from the adoption, as most of the contracts it underwrites are profitable. For context, under the new MFRS 17 standards effective 1 Jan 2023, underwriting profits are to be stretched out across the lifetime of the contract, whereas underwriting losses are charged to the income statement immediately. We advise investors to expect lower reported profits (for all insurers) given the nature of the accounting standard change, but stress that the lower reported numbers do not necessarily mean a weakening in business.
- We lower our FY22F-24F net earnings by 6-9% after the analysts’ briefing, with our TP lowered to MYR16.60 (from MYR17.90). Our SOP- derived TP includes a 4% premium based on AMB’s industry-high ESG score of 3.2 (Figure 2). We continue to like AMB for its solid business prospects and ESG leadership among insurers. The counter is trading at 0.5x FY22F P/BV, at a 1SD discount to its 5-year mean of 0.8x, making valuations attractive for a BUY.
Source: RHB Research - 29 Aug 2022
