Investment Highlights

• We maintain our BUY call on Syarikat Takaful Malaysia Keluarga (STMK) with an unchanged fair value of RM6.20/share. This is based on FY22 P/BV of 2.6x supported by an ROE of 24.8%. We make no changes to our earnings estimate.

• 2Q21 net profit after tax slipped by 19.8% QoQ to RM82mil. The decline in earnings was mainly attributed to lower gross written contributions. Sales from its family and general takaful businesses were lower QoQ.

• 6M21 earnings grew by 3.4% YoY to RM183mil contributed by a stronger top line. Also, it was due to lower fair value losses from the improvement in performance of equity investments under the family takaful business partially offset by higher net claims incurred, administration and management expenses.

• Cumulative earnings were within expectations, accounting for 46.4% and 48.2% of our and consensus estimate respectively.

• The group recorded an improved underwriting margin of 29.0% for 6M21 with a lower combined ratio of 71.0% on the back of lower claims and management expense ratios. Net claims ratio was lower at 42.4% for 6M21.

• The overall group gross written contributions grew strongly by 15.7% YoY for 6M21. The rise was supported by stronger sales of credit related products under the family takaful business. Additionally, it was due to higher sales of general takaful business driven by growth in premiums for motor, fire and engineering insurance.

• Family takaful’s gross written contributions expanded by 16.9% YoY while that of the general takaful business under STMAB grew 12.9% YoY (takaful industry: 13.5% YoY). Growth of the general takaful industry’s gross written contributions continued to outpace that of the conventional general industry which grew only 4.0% YoY.

• 6M21 saw family takaful’s surplus attributable to takaful operator/participants surging by 58.4% YoY largely due to higher net earned contributions and lower fair value losses. Meanwhile, the general takaful surplus attributable to operator/participants was lower at RM13mil in 6M21 (6M20: RM30mil) on higher net claims incurred mainly coming from claims related to the motor class.

• The group’s investment income decreased by 3.4% YoY for 6M21.

• STMK’s Indonesia operations recorded a lower loss before tax of RM0.2mil in 1Q21 vs. -RM2.6mil in 1Q20 due to a decline in management expenses and fair value losses from equity investments. This was largely attributed to the drop in profit income from fixed income investments for family and general takaful businesses.

• The unallocated surplus funds for family and general takaful remained healthy at RM1.2bil and RM211mil respectively.

• With more economic sectors envisaged to be opened once herd immunity against Covid-19 through vaccinations has been achieved, Islamic financing is poised to pick up momentum in tandem with the economic recovery and this is expected to improve the growth of the group’s gross written contributions.

Source: AmInvest Research - 26 Aug 2021