Stock Name: ALLIANZ
Company Name: ALLIANZ MALAYSIA BHD
Research House: RHB
Allianz Malaysia Bhd
(July 9, RM3.70)
Maintain outperform at RM3.79 with fair value of RM5.32: The rights to purchase Allianz's irredeemable convertible preference shares (ICPS) started trading last Friday, and would cease trading at 5pm July 16. Allianz's share price has already been adjusted ex-rights as at July 6 to RM3.83.
Every 100 Allianz shares held would be entitled to rights to purchase 125 ICPS. The rights would thus be priced at 61 sen, i.e. the difference between the share price and the ICPS issue price.
We estimate, based on the current share price of RM3.79 and an overall combined FY11 dividend payout of 35% (for ordinary shares and ICPS), and bearing in mind the 1.2 times dividend payout for the ICPS, Allianz's ordinary dividend yield would be around 3.2%. Meanwhile, the ICPS should theoretically enjoy a dividend yield of 3.8% assuming the ICPS were worth the same as the ordinary shares.
Assuming the yield impact was neutralised for both the ordinary shares and the ICPS, this implied the ICPS should be trading 20% higher than the ordinary shares, or at RM4.55.
Working backwards, after deducting the ICPS issue price of RM3.18, the implied ICPS rights price should be RM1.37. (Note: the ICPS rights fell 15.5 sen to 45.5 sen from the reference price of 61 sen last Friday)
The risks to our forecast for Allianz include: 1) lower-than-expected premium growth; 2) jump in claims ratio; 3) change in Bank Negara policy that would require Allianz to further strengthen its Internal Capital Adequacy Ratio (ICAR); and 4) the changing competitive landscape in the insurance industry due to liberalisation.
We maintain our premium growth and earnings forecasts but we are adjusting our sum-of-parts (SOP) valuations to account for: 1) the fully-diluted earnings per share after adjusting for ICPS; and 2) the rollover of our base valuation year to FY11 from FY10 previously.
Our new SOP fair value is RM5.32, which implies an upside of 40% from its current share price. We continue to be positive on the company.
Notwithstanding the change in capital structure, we reiterate our positive view on Allianz based on: 1) its above-industry average premium growth and below-industry average claims ratio; 2) its bancassurance tie-up with CIMB; 3) the strong growth potential of the life insurance industry in Malaysia; and 4) strong backing by its parent.
Furthermore, the proceeds from the ICPS issue would strengthen its capital base, giving Allianz room to take on more business while reducing its earnings retention ratio so that it could pay more dividends. Maintain "outperform" with a new ex-rights fair value of RM5.32. ' RHB Research, July 9
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This article appeared in The Edge Financial Daily, July 12, 2010.
Company Name: ALLIANZ MALAYSIA BHD
Research House: RHB
Allianz Malaysia Bhd
(July 9, RM3.70)
Maintain outperform at RM3.79 with fair value of RM5.32: The rights to purchase Allianz's irredeemable convertible preference shares (ICPS) started trading last Friday, and would cease trading at 5pm July 16. Allianz's share price has already been adjusted ex-rights as at July 6 to RM3.83.
Every 100 Allianz shares held would be entitled to rights to purchase 125 ICPS. The rights would thus be priced at 61 sen, i.e. the difference between the share price and the ICPS issue price.
We estimate, based on the current share price of RM3.79 and an overall combined FY11 dividend payout of 35% (for ordinary shares and ICPS), and bearing in mind the 1.2 times dividend payout for the ICPS, Allianz's ordinary dividend yield would be around 3.2%. Meanwhile, the ICPS should theoretically enjoy a dividend yield of 3.8% assuming the ICPS were worth the same as the ordinary shares.
Assuming the yield impact was neutralised for both the ordinary shares and the ICPS, this implied the ICPS should be trading 20% higher than the ordinary shares, or at RM4.55.
Working backwards, after deducting the ICPS issue price of RM3.18, the implied ICPS rights price should be RM1.37. (Note: the ICPS rights fell 15.5 sen to 45.5 sen from the reference price of 61 sen last Friday)
The risks to our forecast for Allianz include: 1) lower-than-expected premium growth; 2) jump in claims ratio; 3) change in Bank Negara policy that would require Allianz to further strengthen its Internal Capital Adequacy Ratio (ICAR); and 4) the changing competitive landscape in the insurance industry due to liberalisation.
We maintain our premium growth and earnings forecasts but we are adjusting our sum-of-parts (SOP) valuations to account for: 1) the fully-diluted earnings per share after adjusting for ICPS; and 2) the rollover of our base valuation year to FY11 from FY10 previously.
Our new SOP fair value is RM5.32, which implies an upside of 40% from its current share price. We continue to be positive on the company.
Notwithstanding the change in capital structure, we reiterate our positive view on Allianz based on: 1) its above-industry average premium growth and below-industry average claims ratio; 2) its bancassurance tie-up with CIMB; 3) the strong growth potential of the life insurance industry in Malaysia; and 4) strong backing by its parent.
Furthermore, the proceeds from the ICPS issue would strengthen its capital base, giving Allianz room to take on more business while reducing its earnings retention ratio so that it could pay more dividends. Maintain "outperform" with a new ex-rights fair value of RM5.32. ' RHB Research, July 9
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This article appeared in The Edge Financial Daily, July 12, 2010.
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