Investment Highlights

• We maintain our BUY call on Syarikat Takaful Malaysia Keluarga (STMK) with an unchanged fair value (FV) 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 FV reflects a 3-star ESG rating. We make no changes to our earnings estimate.

• 1Q21 saw a steady net profit after tax of RM101mil (-0.4% YoY). The stable earnings were underpinned by lower fair value losses from investments and net claims partially offset by a drop in net earned premiums/contributions.

• 1Q21 earnings were within expectations, accounting for 25.6% and 26.7% of our and consensus estimate respectively.

• The group recorded an improved underwriting margin of 27.3% with a lower combined ratio of 72.7% in 1Q21 on the back of lower administration and claims ratios. Net claims ratio fell to 42.1% attributed to lower medical claims under family takaful business. Also, fire and personal accident claims under its general takaful business declined.

• The overall group GWP grew modestly by 0.9% YoY in 1Q21. This was attributed to slower sales of group medical products under the family takaful business which partially offset the growth of motor and fire premiums of general takaful business.

• Family takaful’s GWP fell by 4.4% YoY while the GWP for the general takaful business under STMAB grew by 14.9% YoY (takaful industry: 16.5% YoY). Growth of general takaful industry GWP continued to outpace that of the conventional general industry which grew only by 3.9% YoY.

• 1Q21 saw a surplus in family takaful, attributable to takaful operator/participants surging by 271.2% YoY largely due to fair value gains of RM1.2mil vs. fair value losses of RM79.6mil in 1Q20. Meanwhile, the general takaful surplus attributable to operator/participants was lower at -RM7mil in 1Q21 (1Q20: -RM2mil) on to lower net earned premium.

• The group’s investment income dipped by 5.1% YoY in 1Q21. This was largely due to the drop in profit income from fixed income investments for family and general takaful business.

• STMK’s Indonesia operations recorded a lower loss before tax of RM0.2mil in 1Q21 vs. -RM2.6mil in 1Q20 due to decline in management expenses and fair value losses from equity investments.

• The group saw 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 and this is poised to improve the group’s GWP.

Source: AmInvest Research - 27 May 2021