BUY maintained
While flood claims are likely to feature in 4Q21, provision levels are likely to be manageable and we expect operations to have improved QoQ with the opening up of the economy and an end to the lockdowns. Encouragingly, we expect MFRS17 to have a positive impact on group earnings when it is adopted in 2023. We maintain our BUY call on Allianz with an unchanged SOP-derived TP of MYR16.75. Dividend yield is attractive at 4.8%.
Operationally better QoQ
With economic activity picking up in 4Q21, we expect gross written premiums (GWP) to rise QoQ as well. Into FY22, we project GWP growth of 5% for Allianz General (versus an estimated 2-3% in FY21), aided by
increased contributions from sales through Pos Malaysia (6.5% of GWP in 9M21) and a recovery in auto demand, and ANP growth of 12% (versus 11- 12% in FY21) for Allianz Life. We estimate potential flood claims of MYR40m-50m on a net basis after reinsurance but provisions in 4Q21 are likely to be lower, as Allianz typically sets aside contingent provisions each year. Our forecasts are maintained.
MFRS17 to have a positive impact
What is encouraging is that we think MFRS17 (that kicks into effect in 2023) is likely to have an overall net positive impact on the group’s earnings, as it is likely to benefit from the deferment of acquisition costs while there is little by way of single premiums to be amortised. There will be a oneoff adjustment to reserves, given that this accounting standard has to be applied retrospectively, and we think there will be a net addition to reserves, which is positive, the flip side being slightly lower ROEs.
Decent dividend yield of 4.8%
Allianz recently surprised positively with an interim DPS of 63sen for FY21, which was higher than our estimate of 58sen. This translates to a very decent dividend yield of 4.8% at the current share price. We think that the current absolute DPS is maintainable, and raise our future DPS to 63sen.