Alliance ... Jun12

TA Securities

1Q FY12 results came above expectations. Net profit accelerated by 20% to RM53.0mn vs. RM44.2mn a year ago – representing 36% and 35% of ours’ and consensus full year estimates of RM148.5mn and RM151.0mn respectively.

The better YoY performance was underpinned by higher gross earned premiums (+12.7% YoY or RM76.0mn), lower benefits and claims paid, decline in contract liabilities as well as a 14.7% drop in management expenses. The strong 1Q FY12 results were also boosted by the adoption of MFRS
1 where non participating funds surplus are recognized as earnings. Note that 1Q FY11’s PBT had also been restated to RM66.4mn (from RM33.7mn) due to the new accounting policy.

By segment, profit contribution from general business advanced 29% on the back of a 13% increase in operating revenue. The increase helped compensate for a 25% reduction in the life segment’s profit. We note that despite the 12.7% increase in the life business’s gross written premiums (GWP), benefit and claims climbed by close to
25% YoY.

2. Impact and outlook
Our earnings estimates will most likely be revised upwards in tandem with MFRS 1. However, we are
keeping our forecasts unchanged for now pending further clarifications from management in an analyst
briefing later today.

3. Valuation and recommendation
TP is maintained at RM5.70 (based on a 25% discount to industry’s target PER of 8x on FY12 EPS of RM0.949/share). We believe the discount is justified due to the stock’s tight liquidity and smaller market cap compared to larger players such as LPI Cap, Manulife and Pacificmas. Buy maintained.