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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


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


Yap Huey Chiang (603) 92802171

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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

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