Monday 27 February 2012

ALLIANZ (FV RM6.97 - BUY) FY11 Results Review: Ending FY11 With a Bang


FY11 earnings came in within expectations, accounting for 96.1% of our estimates largely due to higher gross earned premium and net investment income. Despite the strong competition and economic uncertainty, it was able to retain its leading position in the general insurance industry, which reinforces our view that the company will remain profitable as it forges ahead. However, we are trimming our earnings forecast by 8.6% in anticipation of more MMIP losses and a slower 2012, but our FV is raised to RM6.97 as we roll-over our valuations to FY12.  BUY.

In line despite MMIP losses.  Allianz recorded earnings that were within our expectations, accounting for 96.1% of our estimates, despite its share of loss which amounted to RM10.0m arising from the Malaysian Motor Insurance Pool (MMIP) in 4QFY11. Both revenue and core net profit surged by 9.7% and 18.1% y-o-y respectively, largely due to higher gross earned premium (+8.4% y-o-y) and net investment income which increased 18.2% y-o-y, buoyed by stronger coupon interest income (+25.6% y-oy) and dividend income (+40.1% y-o-y). The increase in gross earned premium was mainly contributed by its life insurance operations which expanded by 11.1% y-o-y and this was  largely due to the premium growth  from the agency distribution channel. Investment income was also mainly driven by the higher contribution from life insurance operations which surged by 28.9% y-o-y due to a higher investment asset base.  The overall claims ratio remained steady at 62.8% compared to 62.9% in the previous year.

General insurance.  The higher PBT (+8.1% y-o-y) for its general insurance business was mainly underpinned by stronger gross written premium (+10.5% y-o-y), underwriting result (+20% y-o-y) and lower management expenses  (FY11: 17.0% vs FY10: 18.4%), though the group recorded a slight dip in its net investment income for this segment (-5.2% y-o-y). The group’s general insurance portfolio mix remained healthy, with motor and non-motor segments making up 52% and 48% of the total portfolio.

Life insurance.  Surplus before tax surged 9.9% y-o-y  on the back  of  higher gross written premium (+11.1% y-o-y) and stronger investment income (+18.5% y-o-y, due to realized gains from the disposal of equities-linked securities). Surplus transfer from life fund to shareholders’ fund increased by 20% y-o-y to RM18m, slightly below our estimate of RM19.0m.

Maintain BUY with higher FV of RM6.97. In anticipation of more potential losses from MMIP and a slower FY12, we are lowering our FY12 earnings forecast by 8.6%. Nonetheless, our fair value is raised from RM6.60 to RM6.97 as we rollover our valuations to FY12 based on the industry average PER of 15x for its general insurance and P/EV of 1x on an embedded value (EV) of RM580m for its life insurance.

Source: OSK188

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