Allianz Malaysia Bhd
(March 21, RM14.48)
Maintain buy with a target price of RM16.30: Allianz Malaysia Bhd remains a country top pick. With gross domestic product (GDP) growth projected at 4.6% for 2019, the insurance industry is likely to see extended softness in business growth. Still, we believe the company will continue to deliver above-average gross written premium (GWP) growth and respectable FY19F-20F (forecast) earnings growth of 5-6% per annum (pa).

 
The general insurance industry saw muted 1.5% GWP growth in 2018 and is expected to register another year of slow growth in 2019. Allianz General Insurance Company (Agic), which recorded 6% year-on-year (y-o-y) growth in bancassurance GWP in 2018, should continue to do better than peers, helped by its diversified portfolio and focus on delivering value to customers. Agic sees opportunities in the commercial SME segment, residential property sector, and the digital space. Recall that Agic’s Banca partnership with CIMB Bank ended in August 2017, after which a new 15-year partnership with Standard Chartered Bank commenced.

Besides resiliency in the company’s GWP growth, we believe Agic’s profits would also be supported by gradual improvement in its combined ratio of 92.8% in FY18 (industry: 91.7%). Agic plans to increase its mix of non-motor business, from 40% of GWP to about 50% over time. The lower claims experience of its non-motor portfolio would eventually result in improved claims ratio for Agic, which in turn, would lead to an improved combined ratio.

Allianz Life Insurance Malaysia’s (Alim) annualised new premium (ANP) growth has picked up strongly from 5-6% pa during FY14-16 to 15.3% in FY17, and 13.3% in FY18. This has led to an expanding market share of annualised new business — from 6.6% in 2016 to 8.4% in 2018. The healthy increase in ANP underpins Alim’s ability to deliver sustained growth in GWP and pretax profits. We expect Alim’s GWP to grow by 10% and 9% in FY19F-20F.

We raised the group’s projected net profit by 4%-5% for FY19F-20F after factoring in improved expense ratio for Agic and stronger GWP for Alim. Our SOP-derived TP is upgraded to MYR16.30, which implies 1.6 times FY19F forward P/BV (historical average: 1.5 times). — RHB Research, March 21