PP 7767/09/2010(025354)

Malaysia
RHB Research
27 April 2010
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
27 April 2010
MARKET DATELINE

Allianz Malaysia Share Price

Fair Value
:
:
RM5.56
RM6.68
Proposed Rights Issue Of ICPS 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 12.1 2.2 12.1 20.0 1.3 0.4
2010f 2,460.8 102.2 66.4 -14.0 7.2 59.0 1.7 7.2 26.6 1.0 0.4
2011f 2,720.0 115.4 75.0 13.0 8.4 68.0 1.4 8.4 18.3 0.8 0.4
2012f 2,933.5 136.3 88.6 18.1 7.4 - 1.2 7.4 17.2 0.7 0.4
Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES

♦ Rights issue proposed. Allianz yesterday proposed a renounceable rights

Issued Capital (m shares) 153.8
issue of new irredeemable convertible preference shares (ICPS). Other Market Cap (RMm) 855.1
than the targeted gross proceeds of RM611m, and the preferential dividend Daily Trading Vol (m shs) 0.03
rate of 1.2x the declared dividend for Allianz shares in the same year, 52wk Price Range (RM) 3.38 – 5.56
other terms of the proposal have yet to be determined. Major Shareholders: (%)
Allianz SE 75.0
♦ FRS139. We believe the capital raising is partly to address the impact of
FRS139 on the outstanding RM490m interest-free loan from parent Allianz FYE Dec FY10 FY11 FY12
SE. Recall the loan was extended to Allianz for the acquisition of EPS chg (%) - - -
Commerce Assurance in 2007. Under the new international accounting Var to Cons (%) 12.5 10.3 n.a
standard, even though the loan is interest free, a notional interest has to
PE Band Chart
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. PER = 7x
PER = 6x
PER = 5x
♦ 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 Relative Performance To FBM KLCI

conversion later would potentially address the capital needs of the general
and the life businesses under the Risk-Based Capital (RBC) framework. We Allianz Malaysia
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) FBM KLCI

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 Yap Huey Chiang
relatively undervalued due to its ability to maintain above-industry (603) 92802171
premium growth but below-industry combined ratio. We thus maintain our yap.huey.chiang@rhb.com.my
Outperform call on the stock. SOP fair value is unchanged at RM6.68.

Please read important disclosures at the end of this report. Page 1 of 2

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 27 April 2010

Table 2. Earnings Forecasts Table36. 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 general 161.0 163.3 179.6 197.5 Combined ratio 88.0 88.0 88.0
Transfer from life 12.0 13.4 16.0 26.9 Invt return 4.0 4.0 4.0
Finance cost 0.0 (24.5) (24.5) (24.5)
Life
Pretax Profit Premium growth 12.0 12.0 8.0
Tax 166.5 146.0 164.9 194.7 Retention ratio 93.0 93.0 93.0
Minority interest (47.7) (43.8) (49.5) (58.4) Claims ratio 7.0 7.0 7.0
Commission ratio 25.0 25.0 25.0
Net profit 118.8 102.2 115.4 136.3 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

IMPORTANT DISCLOSURES

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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.

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