Investment Highlights

• We initiate coverage on Syarikat Takaful Malaysia Keluarga (STMK) with a BUY call and fair value of RM6.20/share. This is based on FY22 P/BV of 2.6x derived from the Gordon growth model (GGM) with an ROE of 24.8%, cost of equity (COE) of 10.8% and long-term growth rate of 2.0%. Our forward P/BV is at a premium compared to the peer average of 1.4x. We see this as justified, premised on its superior ROE compared to its peers and also it being the only listed pure takaful operator locally. We have assigned a 3-star ESG rating for STMK (Exhibit 41). The group is involved in general and family takaful business.

• Our investment case for STMK is based on the following:

i. Strong market share of 24% for general and 22% for family takaful. It is ranked 2nd in general takaful and 1st in family takaful. Presently, there are 4 takaful operators in general takaful and 11 in family takaful;

ii. 1st listed pure Islamic insurance company locally which has been in existence for more than 3 decades;

iii. Above-industry gross written premiums (GWP) growth for the general takaful, ranked 1st for fire and 3rd for motor, the main segments of general takaful business;

iv. Premiums for credit-related products contributed a significant 78.8% of its family takaful GWP. Further penetration of Islamic financing as a percentage of the banking system’s loans and a pick-up in the expansion rate of Islamic credits as the economy recovers are set to increase the group’s GWP;

v. Multiple banca partnerships to support sales of general and family takaful products. Bank Islam, RHB Islamic, Affin Islamic, Bank Rakyat and Aeon Credit are the preferred partners for its banca business;

vi. A healthy combined ratio of 70.3% for 12M20 with profitable underwriting performance for general and family takaful business;

vii. Stable group claims ratio at 42.9%. The claims ratio for general takaful at 35.0% for FY20 is lower than the takaful industry’s 55.7% and the conventional general insurance industry’s 52.9%;

viii. A healthy surplus funds at RM1.3bil (general takaful RM209mil and family fakaful RM1.1bil); and

ix. Decent dividend yields at 5.2%/5.5% for FY21/22.

Source: AmInvest Research - 31 Mar 2021