ALLIANZ – Fundamental Analysis (12 Mar 2015)

ALLIANZ Analysis:-

Excel – http://1drv.ms/1L1IlSz

Notes – http://tinyurl.com/kvp57q4

My View:-

  • Valuation:
    • Absolute EY%:
      • Trailing:
        • FY14 (EPS: 0.716) – Fair value 10.78 (Fair Value Uncertainty: VERY HIGH)
        • R4Q (EPS: 0.716) – Fair value 10.78 (Fair Value Uncertainty: VERY HIGH)
      • Forward:
        • FY15 (EPS: 0.98) – Fair value 14.75 (Fair Value Uncertainty: MEDIUM)
        • FY16 (EPS: 1.08) – Fair value 16.26 (Fair Value Uncertainty: LOW)
      • EPS applied to reach the current stock price (12.7): 0.844
  • ALLIANZ’s dividend payout is extremely low, so never expect good dividend from them. Reasons:
    • High capital or surplus retained due to nature of industry
    • Stringent regulatory requirement to protect policyholders’ interest
    • Managing stringent capital buffer to withstand adverse or unfavorable experience
  • Unlike LPI (general insurance and financing on leases), ALLIANZ is heavily dependence on single segment: motor insurance; and also dependence on agent for life insurance. ALLIANZ requires high capital to grow distribution capabilities, and fund new business growth. By the way, my wife owned shares of LPI.
  • Balance float of outstanding shares is very low: 4.20%.
  • 3 Mar 2015 – Allianz General Insurance (AGIC) is still the largest local GI player (12.4% market share) with 8% FY14 gross premium growth vis-à-vis industry’s 5.9%, though we understand it did not benefit much from lumpy insurance businesses (contractor’s all risks/foreign workers) that was believed to have boosted industry’s growth from 9M14’s 5.1%. AGIC will retain its strategies to keep combined ratios consistently low and invest prudently in infrastructure to prepare for an industry detariffication by 2016. It also sees topline growthchallenges but will continue its higher retention and focus on capturing retail portfolio.
    • Similar to AGIC, Allianz Life (ALIM) is cautious on business outlook and expects a tough 1H15 on a tightening credit environment and customer hesitation due to goods and services tax (GST) implementation (ie the impending LI framework) and medical inflation. It remains focused on safeguarding long-term margins via constant repricing, though. ALIM will work on churning productivity from new agents hired (active agents: 2,500, total: 8,700l) and managing claims efficiency from its medical business. The resilient investment income performance (despite Malaysian Government Securities declining in 2014) was on its fast-growing exposure to investment linked business (ILB) and protection riders, which are less sensitive to interest rate impact.
  • As Life Insurance is maturing into an exponential phase of contribution, I believe ALLIANZ growth is quite secure. Besides, recurring premium is now 80% of LI’s portfolio and new business margins will be anchored by bancassurance (past the initial phases of expense overrun) and ILB (better margins vs traditional).
  • Valuation of ALLIANZ is still attractive. I will continue to hold ALLIANZ, and accumulate ALLIANZ whenever possible.

Latest Financial – Q4 2014 Financial Report (27 Feb 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1888361

At the time of writing, I owned shares of ALLIANZ.

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