Investment Highlights

• We upgrade our call on Syarikat Takaful Malaysia Keluarga (STMK) from HOLD to BUY with a higher fair value of RM4.20/share (from RM3.60/share previously), pegging the stock to an unchanged FY23F P/BV of 2.2x supported by a ROE of 20.8%. This stems from a higher FY23F BV/share after factoring in restated shareholders’ funds for FY22 due to the adoption of MFRS 17.

• No changes to our neutral 3-star ESG rating.

• STMK’s 1Q23 earnings were within expectation, making up 29.7% of our FY23F net profit and 25.6% of consensus’.

• The group adopted MFRS 17 on 1 Jan 2023. The adoption saw the opening retained earnings of the group on 1 Jan 2022 restated lower by 37.7% or RM583mil to RM962mil. On 1 Jan 2022, a transition contractual service margin (CSM) of RM1.1bil has been recognised in the balance sheet under the takaful contract liabilities.

• No negative impact on capital ratio as the group is still required to adhere to the risk-based capital (RBCT) framework under MFRS 4. Total capital available of RM2.1bil is still adequate to meet the minimum capital adequacy ratio (CAR) requirement of 130%.

• 1Q23 net profit after tax grew by 21.1% YoY to RM93mil. This was contributed by higher total investment income from an increase in profits from fixed income investments and lower fair value losses on investment assets. This was partially offset by 18.6% YoY decrease in takaful service results owing to an increase in service expenses.

• The group’s takaful revenue grew by 17% YoY to RM635mil. This was contributed by general takaful business revenue growth of 25.3% YoY and family takaful revenue growth of 16.6%. The increase in general takaful revenue was driven by a higher contribution income from the fire and motor class of business.

• In 1Q23, takaful service expenses rose by 21.4% YoY to RM604mil. This was contributed by higher claims incurred for family takaful. Also, it was due to the increase in claims incurred from fire and motor class of businesses and the higher amortisation of acquisition cost under general takaful.

• The group’s total investment income climbed by >100%YoY to RM122mil in 1Q23. This was largely contributed by higher profit income from fixed income investments for both the family and general takaful business. Family takaful recorded a lower net fair value losses on financial assets of RM9mil in 1Q23 vs. losses of RM33mil in 1Q22.

• No dividends have been declared in the quarter.

• The stock is trading at an attractive FY23F P/BV of 1.8x vs. a 5-year average of 2.6x with a decent dividend yield of 4.2%.

Source: AmInvest Research - 1 Jun 2023