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Malaysia

PP 7767/09/2010(025354)

Corporate Highlights
New s Upda te

RHB Research2010 27 April Institute Sdn Bhd A member of the RHB Banking Group
Company No: 233327 -M

MARKET DATELINE

27 April 2010 Share Price Fair Value Recom : : : RM5.56 RM6.68 Outperform (Maintained)
Bloomberg: ALLZ MK Net EPS (sen) 77.2 66.4 75.0 Growth (%) 68.0 -14.0 13.0 PER (x) 12.1 7.2 8.4 59.0 68.0 C.EPS* (sen) P/NTA (x) 2.2 1.7 1.4 1.2 P/CF (x) 12.1 7.2 8.4 7.4 ROE (%) 20.0 26.6 18.3 Gearing (%) 1.3 1.0 0.8 DY (%) 0.4 0.4 0.4

Allianz Malaysia
Proposed Rights Issue Of ICPS

Table 1 : Investment Statistics (Allianz; Code: 1163) Net FYE Dec 2009 2010f 2011f Turnover (RMm) 2,222.7 2,460.8 2,720.0 profit (RMm) 118.8 102.2 115.4

2012f 2,933.5 136.3 88.6 18.1 7.4 Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC

17.2 0.7 0.4 * Consensus Based On IBES 153.8 855.1 0.03 3.38 – 5.56 (%) 75.0 FY11 10.3 FY12 n.a

Rights issue proposed. Allianz yesterday proposed a renounceable rights issue of new irredeemable convertible preference shares (ICPS). Other than the targeted gross proceeds of RM611m, and the preferential dividend rate of 1.2x the declared dividend for Allianz shares in the same year, other terms of the proposal have yet to be determined. FRS139. We believe the capital raising is partly to address the impact of FRS139 on the outstanding RM490m interest-free loan from parent Allianz SE. Recall the loan was extended to Allianz for the acquisition of Commerce Assurance in 2007. Under the new international accounting standard, even though the loan is interest free, a notional interest has to be charged to the P&L, which we have assumed to be 5% p.a. in our forecasts from FY10. The rights issue will thus swap Allianz SE’s loan with the ICPS. Preferential dividend. Based on our assumption of 2 sen gross dividend p.a., we estimate ICPS-holders will thus receive a preferential dividend rate at 2.4 sen. Assuming 190.9m ICPS are issued, this would imply a dividend payment of RM4.6m, which is significantly less than our current forecast of RM24.5m notional interest charge on the RM490m loan. RBC requirements. In addition, funds raised from the ICPS as well as the conversion later would potentially address the capital needs of the general and the life businesses under the Risk-Based Capital (RBC) framework. We understand that Allianz will still need to raise its internal capital adequacy ratio (CAR) above current levels. Risks. The risks include: 1) lower-than-expected premium growth; 2) jump in claims ratios; 3) 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 4) intense competition from insurance sector liberalisation. Forecasts. We are maintaing our FY10-12 forecasts for now. However, we estimate there would be 50% potential dilution to FY11 EPS forecast, using the company’s own assumptions of: 1) 190.9m new ICPS issued on the basis of 124 ICPS for every 100 shares held; and 2) ICPS issue price of RM3.20. We have assumed 1-for-1 conversion at current share price. This is also after adjusting for a lower preferential dividend of RM4.6m (reflected as interest) vs. our existing forecast. However, we note that this would be on a worst case basis, as 75% of the ICPS would still be owned by Allianz SE. Investment case. We continue to like the stock given that we believe it is relatively undervalued due to its ability to maintain above-industry premium growth but below-industry combined ratio. We thus maintain our Outperform call on the stock. SOP fair value is unchanged at RM6.68.
Please read important disclosures at the end of this report.

Issued Capital (m shares) Market Cap (RMm) Daily Trading Vol (m shs) 52wk Price Range (RM) Major Shareholders: Allianz SE FYE Dec EPS chg (%) Var to Cons (%) PE Band Chart FY10 12.5

PER = 7x PER = 6x PER = 5x

Relative Performance To FBM KLCI

Allianz Malaysia

FBM KLCI

Yap Huey Chiang (603) 92802171 yap.huey.chiang@rhb.com.my

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27 April 2010
Table 2. Earnings Forecasts FYE Dec (RMm) Life premium General premium Other revenues Total Turnover Profit from s/holders funds Transfer from general Transfer from life Finance cost Pretax Profit Tax Minority interest Net profit 166.5 (47.7) 118.8 146.0 (43.8) 102.2 164.9 (49.5) 115.4 194.7 (58.4) 136.3 161.0 12.0 0.0 163.3 13.4 (24.5) 179.6 16.0 (24.5) 197.5 26.9 (24.5) Life Premium growth Retention ratio Claims ratio Commission ratio Mgmt exp ratio Combined ratio Invt return Source: Company data, RHBRI estimates 12.0 93.0 7.0 25.0 10.0 42.0 5.0 12.0 93.0 7.0 25.0 10.0 42.0 5.0 8.0 93.0 7.0 25.0 10.0 42.0 5.0 Combined ratio Invt return 88.0 4.0 88.0 4.0 88.0 4.0 FY09 868.7 1,202.4 151.6 2,222.7 (6.5) FY10F 973.0 1,322.6 165.2 2,460.8 (6.3) FY11F 1,089.7 1,454.9 175.4 2,720.0 (6.2) FY12F 1,176.9 1,600.4 156.3 2,933.5 (5.2) Table36. Forecast Assumptions FYE Dec (%) General Premium growth Retention ratio Claims ratio Commission ratio Mgmt exp ratio 10.0 64.0 60.0 10.0 18.0 10.0 64.0 60.0 10.0 18.0 10.0 64.0 60.0 10.0 18.0 FY10F FY11F FY12F

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. securities, subject to the duties of confidentiality, will be made available upon request. Additional information on recommended

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