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PP 7767/09/2010(025354)

1 March 2010

Malaysia Corporate Highlights


RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
1 March 2010
MARKET DATELINE

Allianz Malaysia Share Price


Fair Value
:
:
RM4.75
RM5.83
Stronger Growth Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (Allianz; Code: 1163) Bloomberg: ALLZ MK


Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing DY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 2,222.7 118.8 77.2 68.0 10.3 - 1.9 10.3 20.0 1.3 0.4
2010f 2,460.8 89.2 58.0 -24.9 6.2 59.0 1.4 6.2 26.6 1.0 0.4
2011f 2,720.0 101.1 65.7 13.4 8.2 68.0 1.2 8.2 16.2 0.8 0.4
2012f 2,933.5 119.6 77.7 18.2 7.2 - 1.0 7.2 15.6 0.7 0.4
Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES

♦ Above expectations. Allianz recorded 4QFY12/09 net profit of RM60.2m


RHBRI Vs.
Above
Consensus

(+160.2% qoq, 193.7% yoy), bringing FY12/09 earnings to 147.6% and


In Line
150.2% of our and consensus’ estimates respectively. The main variance
Below
was due to higher-than-expected: 1) life and general insurance gross
premium growth; and 2) higher profit transfer from general and life
Issued Capital (m shares) 153.8
insurance.
Market Cap (RMm) 723.2

♦ 2 sen dividend. As expected, it declared a first and final dividend of 2 sen Daily Trading Vol (m shs) 0.02

(less 25% tax), translating into net payout of 1.9% or net yield of 0.3%. 52wk Price Range (RM) 2.5 – 5.0
Despite the low payout ratio, this was in line with our expectation, as it Major Shareholders: (%)
needs to conserve capital in view of the intention to raise funds to repay Allianz SE 75
RM490m soft loan from its parent and meet RBC requirement for life insurance
subsidiary. FYE Dec FY10 FY11 FY12
EPS chg (%) 7.5 7.2 new
♦ General insurance. Despite 27.9% qoq and 7.8% yoy decline in 4Q09 Var to Cons (%) (1.7) (3.3) -
gross premium, we took comfort from 11.9% yoy growth in FY09 vs. FY08,
mainly because we believe Allianz is cautiously growing its premium PE Band Chart
portfolio, in order to contain its claims ratio. Combined ratio in FY09
declined by 90bps, backed by lower claims ratio (of 58.1% vs. 60% in PER = 7x
FY08) and management expense (of 19.1% vs. 20.1% in FY08). This PER = 6x
PER = 5x
resulted in its surplus transfer from general insurance increasing by 23.4%
yoy.

♦ Life insurance. Gross premium in 4Q09 grew by 26.4% yoy, bringing


FY09 gross premium growth to 25.5% yoy. Its management expense ratio
in FY09 declined to 9% from 10.5% in FY08, benefiting from the critical
mass achieved. Surplus transfer was higher by 125.7% yoy (or RM12m), Relative Performance To FBM KLCI
beating our earlier projection of RM10.4m.

♦ Risks. The risks include: 1) lower-than-expected premium growth; 2)


jump in claims ratios; 3) potential dilution and interest charge from the
Allianz Malaysia
need to raise cash to repay shareholder loan; 4) RBC implementation from
1 Jan 09 – general business already complied with the 75% confidence
level for IBNR but it is still uncertain on the capital requirement for the life
business; and 5) intense competition from insurance sector liberalisation. FBM KLCI

♦ Forecasts. FY10-11 forecast were raised by 7.2-7.5% to reflect the


higher-than-expected gross premum growth and profit transfers. However,
we are keeping most of our assumptions for now, pending analyst briefing
today.

♦ Investment case. Allianz’s above-industry premium growth but below-


industry combined ratio, coupled with its resilient earnings are the main
reasons we continue to like the stock. Given that additional capital under Low Yee Huap, CFA
RBC requirement is not substantial, the impact of dilution from capital (603) 92802641
raising exercise will be minimised. We maintain our Outperform call on low.yee.huap@rhb.com.my
the stock with SOP based fair value of RM5.83.
Please read important disclosures at the end of this report.

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Table 2. Summary of Results


4Q08 3Q09 4Q09 QoQ YoY 12M08 12M09 YoY
FYE Dec (RMm) Comments
(%) (%) (%)
Revenue 489.6 631.8 524.5 -17.0 7.1 1898.9 2222.6 17.1 Mainly due to strong growth in
gross premium from both life and
general insurance.
Profit fr Gen Ins 42.2 36.9 71.0 92.4 68.3 130.5 161.0 23.4 Higher yoy mainly due to higher
underwriting surplus, largely
because of lower claims and
management expense ratios.
Profit fr Life Ins 5.3 0.0 12.0 n.a 125.7 5.3 12.0 125.7 Second year of life profit transfer.
Profit fr -7.7 -1.3 -2.1 65.5 -72.1 -23.5 -6.5 -72.4
shareholders fund
Pretax profit 39.8 35.6 80.9 127.0 103.1 112.3 166.5 48.3
Taxation -19.3 -12.5 -20.7 65.6 7.0 -41.6 -47.7 14.6
Net Profit 20.5 23.1 60.2 160.2 193.7 70.7 118.9 68.0
Tax rate (%) 48.5 35.0 25.6 37.0 28.6 Higher than statutory tax rate due
to certain non-deductible expenses
and reversal of deferred tax assets.
Source: Company, RHBRI

Table 3. General Insurance Results


4Q08 3Q09 4Q09 QoQ YoY 12M08 12M09 YoY
FYE Dec (RMm) Comments
(%) (%) (%)
Gross Premium 266.2 340.4 245.4 -27.9 -7.8 1074.9 1202.4 11.9 Maintained strong growth attributed
to its agency force and
bancassurance tie-up with CIMB.
Reinsurance -76.9 -123.0 -66.0 -46.3 -14.2 -381.1 -414.6 8.8 Higher retention rate yoy- possibly
due to more motor business
undertaken.
Net premium 189.2 217.4 179.4 -17.5 -5.2 693.8 787.8 13.5
Unearned premium -16.3 -21.9 46.5 -312.2 -385.2 -38.8 -1.8 -95.4
Earned premium 173.0 195.5 225.9 15.5 30.6 655.0 786.0 20.0
Net claims -99.5 -121.6 -106.7 -12.2 7.3 -393.3 -456.3 16.0 Claims ratio decline, believed to
benefit from its more prudent risk
management.
Commission -12.2 -16.4 -23.9 46.3 96.1 -50.9 -77.3 51.9
Management exp -32.6 -34.8 -40.6 16.7 24.7 -131.4 -150.0 14.2
Underwriting 28.7 22.8 54.6 139.6 90.5 79.4 102.4 28.9 Improved, attributed to lower
surplus combined ratio.
Invest income 13.7 14.5 15.4 6.3 12.4 51.8 58.0 11.9 Attributed to stable interest and
dividend income.
Other income -0.2 -0.4 0.9 -327.1 -506.1 -0.8 0.6 -181.9 Turnaround, due to better capital
market condition vs. 2008. FY08
was hit by impairment loss, coming
from Commerce Assurance legacy
investment.

Surplus 42.2 36.9 71.0 92.4 68.3 130.5 161.0 23.4

Ratios
Claims 57.5 62.2 47.2 60.0 58.1 Better than expected.
Commission 7.1 8.4 10.6 7.8 9.8
Management exp 18.8 17.8 18.0 20.1 19.1
Combined 83.4 88.3 75.8 87.9 87.0
Source: Company, RHBRI

Table 4. Life Insurance Results


4Q08 3Q09 4Q09 QoQ YoY 12M08 12M09 YoY
FYE Dec (RMm) Comments
(%) (%) (%)
Gross Premium 188.7 252.5 238.4 -5.6 26.4 692.0 868.7 25.5 Consistently growing at double-digit
rate, thanks to its highly productive
agency force, new innovative
products and full support from
parent.
Reinsurance -11.6 -14.8 -14.2 -4.0 22.2 -52.2 -55.8 6.9
Net premium 177.1 237.7 224.2 -5.7 26.6 639.9 813.0 27.1
Benefits -32.2 -39.8 -46.1 15.8 43.0 -143.5 -150.7 5.0
paid/payable
Commission -47.1 -52.4 -59.2 13.0 25.6 -157.8 -205.6 30.3
Management exp -17.3 -17.7 -19.9 12.4 14.9 -67.0 -73.2 9.2
Underwriting 80.4 127.8 99.0 -22.5 23.2 271.5 383.4 41.2 Mainly boosted by lower payout and
surplus management expense ratios, as it
reached critical mass.
Invest income 18.5 19.8 21.7 9.8 17.5 66.3 78.9 19.0 Mainly from stable interest and

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dividend income.
Other income -10.6 7.8 1.1 -86.6 -109.9 -26.1 12.7 -148.7 Turnaround believed to be from the
improved capital market resulting
in profit from sale of securities
and/or MTM gain.
Surplus 88.3 155.4 121.8 -21.6 38.0 311.7 475.0 52.4

Ratios
Payout 18.2 16.8 20.6 22.4 18.5
Commission 26.6 22.0 26.4 24.7 25.3
Management exp 9.8 7.5 8.9 10.5 9.0
Combined 54.6 46.2 55.8 57.6 52.8
Source: Company, RHBRI

Table 5. Earnings Forecasts Table 6. Forecast Assumptions


FYE Dec (RMm) FY09 FY10F FY11F FY12F FYE Dec (%) FY10F FY11F FY12F

Life premium 868.7 973.0 1,089.7 1,176.9 General


General premium 1,202.4 1,322.6 1,454.9 1,600.4 Premium growth 10.0 10.0 10.0
Other revenues 151.6 165.2 175.4 156.3 Retention ratio 64.0 64.0 64.0
Total Turnover 2,222.7 2,460.8 2,720.0 2,933.5 Claims ratio 61.0 61.0 61.0
Commission ratio 10.0 10.0 10.0
Profit from s/holders (6.5) (6.3) (6.2) (5.2) Mgmt exp ratio 18.0 18.0 18.0
funds
Transfer from general 161.0 144.8 159.2 175.1 Combined ratio 89.0 89.0 89.0
Transfer from life 12.0 13.4 16.0 26.9 Invt return 3.4 3.4 3.4
Finance cost 0.0 (24.5) (24.5) (24.5)
Life
Pretax Profit Premium growth 12.0 12.0 8.0
Tax 166.5 127.4 144.5 173.3 Retention ratio 93.0 93.0 93.0
Minority interest (47.7) (38.2) (43.3) (53.7) Claims ratio 7.0 7.0 7.0
Commission ratio 25.0 25.0 25.0
Net profit 118.8 89.2 101.1 119.6 Mgmt exp ratio 10.0 10.0 10.0
Combined ratio 42.0 42.0 42.0
Invt return 5.0 5.0 5.0
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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