Investment Highlights

• We maintain our BUY call on Syarikat Takaful Malaysia Keluarga (STMK) with a higher fair value of RM4.80/share from RM4.20/share after rolling forward our valuation to FY24. We peg the stock to FY24F P/BV of 2.2x supported by a ROE of 21.8%.

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

• STMK’s 6M23 earnings were within expectations making up 56% of our forecast and 50.8% of the consensus estimate.

• STMK’s 6M23 core earnings of RM186mil rose by 30.1% YoY, supported by higher net investment income which offset a lower takaful service result.

• The group’s takaful revenue grew by 17.9% YoY to RM1.3bil. This was contributed by higher contribution income from General Takaful as well as an increase in release of contractual service margin (CSM) by RM12.3mil.

• Nevertheless, takaful service results fell by 30% YoY contributed by increased takaful service expenses. This was attributed to higher claims from family takaful (+12.2% YoY to RM600.9mil) and general takaful (+19.7% YoY to RM280.6mil) coupled with higher amortisation of acquisition cash flows (wakalah fees). For general takaful, the increase in claims came from fire and motor class of business.

• Net profit expenses from takaful contracts issued rose by RM35mil in 6M23.

• 2Q23 net profit after tax of RM92mil was subdued (-1.7% QoQ). This was contributed by a marginally lower takaful service results (-3.3% QoQ) from higher net expense from re-takaful contracts held which offset an increase in investment income by RM8mil.

• The group’s total investment income climbed by >100%YoY to RM252mil in 6M23. This was largely contributed by the 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 RM10mil in 6M23 vs. RM66mil in 6M22.

• No dividends have been declared in the quarter.

• The stock is trading at an attractive FY24 P/BV of 1.7x with a decent dividend yield of 4.7%.

Source: AmInvest Research - 30 Aug 2023