Introduction to Allianz Malaysia

Allianz Malaysia is a prominent player in the diversified financials sector in Malaysia, offering a blend of life and general insurance services. As the largest general insurer by gross written premiums and among the top five life insurers in the country, Allianz Malaysia provides a robust investment opportunity with more than a 5% dividend yield.

Allianz Life and General Businesses: A Symbiotic Growth

Allianz Malaysia’s life and general insurance arms have demonstrated complementary growth patterns over the years. Allianz Life contributes 54% to the group’s gross written premiums (GWP) and 43% to the pretax profit for FY23. Over the past five years, Allianz Life’s GWP and pretax profit have grown at compound annual growth rates (CAGR) of 8.3% and 15%, respectively. Similarly, Allianz General has witnessed a CAGR of 7.2% in GWP and 12% in pretax profits.

There is potential for Allianz General to outperform, especially with the trends in car sales and property loans. Although GWP growth might moderate in the second half of 2024, it is poised to exceed the forecasted growth rate of 10%. An improvement in the combined ratio from a high of 90.1% could further bolster performance.

Allianz Life: Strong Growth and Value Creation

Allianz Life has experienced a notable increase in New Business Value (NBV), which surged by 26.7% year-on-year in the first half of 2024. The Value of New Business (VNB) reached MYR266 million, a 1.3 times increase over the Contractual Service Margin (CSM) release of MYR237 million, which itself was up by 23.6% YoY. As of June 30, 2024, Allianz Life’s CSM stood at MYR3.46 billion.

Target Price and Valuation Insights

Maybank Investment Bank Berhad maintains a “BUY” recommendation for Allianz Malaysia with a target price of MYR24.85. This valuation is based on an embedded value (EV) of MYR3.9 billion for Allianz Life and a price-to-embedded value (P/EV) of 1x. Additionally, a price-to-book value (PBV) target of 1.7x has been set for Allianz General, considering recent M&A transactions in the industry and Allianz General’s market leadership.

Risk Analysis

The report highlights several risks that could impact earnings estimates, target price, and ratings for Allianz Malaysia. The life insurance segment is susceptible to consumer sentiment and household wealth growth, while high claims could affect profitability. The general insurance business depends on the demand for vehicles and properties, which might decline with slower economic growth. The removal of fire and motor tariffs could also impact profitability if competition intensifies.

Financial Metrics and Performance

For FY24, Allianz Malaysia expects its insurance revenue to be MYR4,923.5 million, with a pretax profit forecast of MYR1,067.2 million. The core net profit is projected at MYR811.1 million. The company’s return on average equity (ROAE) is anticipated to be 15.2%, with a dividend per share (DPS) of MYR1.12, offering a net dividend yield of 5.5%.