PP 7767/09/2010(025354)

26 August 2010

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

R e su lts N ot e
26 August 2010
MARKET DATELINE

Allianz Malaysia Share Price

Fair Value
:
:
RM4.16
RM5.32
Net Profit Grew 48.5% YoY Recom : Outperform
(Maintained)

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

Net FD FD EPS Net
FYE Turnover profit EPS EPS Growth PER C.EPS* P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (%) (%) (%)
2009 2,222.7 118.8 77.2 Na Na 5.4 - 1.3 20.0 1.3 0.5
2010f 2,460.8 110.6 71.9 32.0 Na 5.8 59.0 1.8 26.6 1.0 0.5
2011f 2,720.0 132.6 86.2 38.3 20.0 4.3 68.0 1.6 19.7 Net cash 4.2
2012f 2,933.5 153.5 99.7 44.3 15.8 4.2 - 1.4 19.6 Net Cash 4.8
Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES

♦ Within our expectation but above consensus. Allianz’s 1H FY12/10 net RHBRI Vs. Consensus
profit of RM52.8m came in at 48% of our and 58% of consensus full-year Above
earnings forecasts respectively. We consider this to be in line with our In Line
expectation as the surplus transfer from the life fund will only be included Below
in the earnings in the 4Q. We project RM12m transfer from the life fund.
Stripping out the after-tax surplus transfer of RM8m (assuming 1H10 tax Issued Capital (m shares) 153.8
rate of 33.5%) based on our forecasts, Allianz 1H10 earnings made up Market Cap (RMm) 640.1
51.5% of our full-year forecast. Daily Trading Vol (m shs) 0.06
♦ Earnings grew 48.5% yoy. 1H net profit grew by an impressive 48.5% 52wk Price Range (RM) 3.64-5.56
yoy due to strong growth in both general and life gross premiums which Major Shareholders: (%)
grew by 19% and 26.9% respectively. Earnings were also boosted by Allianz SE 75
higher investment income of RM84.3m (+17.1% yoy) and a slight
improvement in blended claims ratio of 1.5%-pt yoy. Qoq, revenue FYE Dec FY10 FY11 FY12
declined vs. the exceptionally stronger 1Q which saw general and life EPS chg (%) - - -
premiums grow by 29% and 35.6% respectively. Var to Cons (%) 21.9 26.8 -

♦ General insurance continues to grow beyond expectations. As PE Band Chart

highlighted, 1QFY10 was an exceptionally strong quarter in terms of gross
premium growth. Recall in our report dated 31 May, we were told by
PER = 6x
management to expect a general business premium growth of 9-10% for PER = 5x
FY12/10. However, it seems that premium growth might still beat PER = 4x
expectations, with 1H growth of 19% (1Q:29%; 2Q: 13.1%). We are
cautious as we believe growth is roughly co-related to the strong 1Q and
2Q GDP of 10.1% and 8.9%, thus an expected weaker GDP growth in the
2H might bring gross premium growth back down. In terms of
profitability, the general business combined ratio improved by 2.3%-pts, to
89.5% from 91.8% previously.
Relative Performance To FBM KLCI
♦ Life insurance does well too. 1H10 life insurance premium grew by
26.9% (1Q:35.6%; 2Q: 20.5%). While the impact of the growth has not
yet been felt from the surplus transfer from the life insurance fund, we are FBM KLCI
optimistic that our projected transfer of RM12m will be achieved.
♦ Risks. The risks include: 1) lower-than-expected premium growth; 2)
jump in claims ratios; 3) intense competition from insurance sector Allianz Malaysia
liberalisation; and 4) a change in BNM policy that would require Allianz to
further increase its Internal Capital Adequacy Rato (ICAR), in compliance
with RBC requirements.
♦ Forecasts. We are maintaining our forecasts for the time being, pending
the analysts’ briefing later today.
♦ Recommendation. We maintain our Outperform call on the stock with
unchanged SOP fair value of RM5.32. Allianz’ current share price of RM4.16
implies an upside potential of 28%. We also believe that there is an
arbitrage opportunity in Allianz ICPS which is currently trading slightly
lower at RM4.14, when it should be trading at a premium of ~20% to the Yap Huey Chiang
mother to account for the higher dividend payout. (603) 92802641
yap.huey.chiang@rhb.com.my

Please read important disclosures at the end of this report.

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Table 2. Summary of results

QoQ YoY YoY
FYE Dec (RMm) 2Q09* 1Q10 2Q10 (%) (%) 1H09 1H10 (%)
Revenue 488.4 626.3 611.9 -2.3 25.3 1014.4 1238.2 22.1 Higher revenue was due to
growth in both general and life
insurance by 25.1% and 35.6%
respectively. Qoq revenue
declined due to exceptionally
stronger 1Q
Gross earned premium 452.5 584.8 569.1 -2.7 25.8 942.4 1153.9 22.4
Net earned premium 370.1 434.9 447.0 2.8 20.8 710.8 881.9 24.1
Net Claims -223.5 -310.5 -307.4 -1.0 37.5 -508.3 -617.9 21.5
Investment income 36.0 41.5 42.9 3.4 19.2 72.0 84.3 17.1
Profit before tax 29.1 35.7 43.6 22.0 49.7 54.4 79.4 45.8 Yoy PBT surged 45.8% due to
stronger gross premiums
growth for both life and
general, higher investment
income and lower net claims
Tax -8.9 -12.6 -14.0 11.5 57.6 -18.9 -26.6 40.5
Net profit 20.2 23.2 29.6 27.7 46.2 35.5 52.8 48.5

Net claims/Net earned premium -60.4 -71.4 -68.8 2.6 -8.4 -71.5 -70.1 1.5 1H09 claims ratio improved by
1.5%-pts
PBT margin 6.0 5.7 7.1 1.4 1.2 5.4 6.4 1.0
Net margin 4.1 3.7 4.8 1.1 0.7 3.5 4.3 0.8
Tax rate (%) -30.5 -35.2 -32.1 3.0 -1.6 -34.7 -33.5 1.2 Higher effective tax rate vs.
statutory tax rate due to
effects of certain non-
deductible expenses

*some figures are different due to changes in FRS.

Source : Company, RHBRI estimates

Table 3. Earnings Forecasts Table 4. 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 60.0 60.0 60.0
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 161.0 163.3 179.6 197.5 Combined ratio 88.0 88.0 88.0
general
Transfer from life 12.0 13.4 16.0 26.9 Invt return 4.0 4.0 4.0
Finance cost 0.0 (12.5) 0.0 0.0
Life
Premium growth 12.0 12.0 8.0
Pretax Profit 166.5 158.0 189.4 219.2 Retention ratio 93.0 93.0 93.0
Tax (47.7) (47.4) (56.8) (65.8) Claims ratio 7.0 7.0 7.0
Commission ratio 25.0 25.0 25.0
Net profit 118.8 110.6 132.6 153.5 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

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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
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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.

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