Allianz- a cheap composite insurance company

Background

Allianz Malaysia Bhd ('Allianz') is a composite insurance company. As part the group's restructuring exercise [which included the completion of the acquisition of Commerce Assurance Bhd ('CAB') on August 28th last year], Allianz now has three subsidiaries – the other two being Allianz Life Insurance Malaysia Bhd ('ALIM') and Allianz General Insurance Co (M) Bhd ('AGIC'). As of December 2006, Allianz was the country's second largest general insurer with about 10% market share. It currently has 56 branches – 34 for Allianz and 22 for CAB.

Allianz's future growth may come from its bancassurance tie-up with CIMB Bank to distribute its general insurance products. That gives the group a larger distribution network as it is able to sell products, which include fire, motor and marine insurance through CIMB's 383 branches.

Financial Results

For the FYE31/12/2007, Allianz's turnover increased by 27.4% from RM1.134 billion to RM1.445 billion. The increase was attributable to strong gross in gross premium of 27% or RM288 million for the general insurance business & RM102 million for the life insurance business, respectively. The newly-acquired subsidiary, CAB contributed RM125 million to the gross premium of the general insurance business.

Allianz reported a net loss of RM2.6 million as compared to a net profit of RM35.0 million previously due mainly to a pre-tax loss of RM33.9 million incurred by CAB as a result of higher claims incurred & provision for bad & doubtful debts, following the alignment of the practices & procedures of CAB & the group. CAB also incurred a one-off integration cost of RM15.9 million for voluntary separation scheme, impairment & write-off of assets & branch relocation exercise. Most of the above-mentioned expenses, provisioning & write-off was done in the QE31/12/2007. Thus, the group's results for QE31/12/2007 was impact accordingly.

The group's earning up to FY2009 will come solely from the general insurance business. The life insurance business will only begin to contribute to the group's profit in FY2010 after it had beefed up the Life Insurance' solvency margin under Bank Negara's requirement.



Valuation

Ignoring the one-off loss incurred in QE31/12/2007, Allianz share would probably have an earning of about 40 sen for FYE31/12/2007. Assuming it can maintain that level of earning for current year, Allianz (closed at RM3.54 today) would be trading at a PE of about 8.9 times. At this PE, Allianz is cheap.

Technical outlook

Allianz share price dropped from a high of RM6.65 on requotation to a recent low of RM2.97. In the past two days, the share price has shot up by 50 sen. The share, which could have bottomed at the RM3.00 level, would probably rise further as there is not much resistance in sight. The downtrend line, drawn from its high of RM6.65, would present some resistance at the RM3.90-4.00 level. However, it is noted that the upleg in the past 2 days is on relatively thin volume. A break above RM4.00 would mean the downtrend is over.


Chart: Allianz's daily chart as at April 21, 2008 (courtesy of Quickcharts)

Conclusion

Allianz is a composite insurer, with a very promising future. While the technical picture has yet to turn positive, there is sign that it could have bottomed. Allianz could be a good stock to accumulate on weakness.