Investment Highlights

• We maintain BUY on Syarikat Takaful Malaysia Keluarga (STMK) with an unchanged fair value of RM4.40/share, pegging the stock to FY24F P/BV of 1.9x, supported by ROE of 18.9%.

• No changes to our neutral 3-star ESG rating. Our net profit estimates are unchanged as 1Q24 net profit of RM102mil were within expectations, accounting for 27.6% of our and 26.2% of consensus estimate.

• Net profit grew 9.5% YoY/45.5% QoQ in 1Q24, driven by stronger takaful service results and net investment income.

• Takaful revenue rose to RM892mil (+40.4% YoY) in 1Q24, supported by higher release of contractual service margin (CSM) of RM6.7mil and increase in contribution releases of RM67mil (mainly from General Takaful’s fire and motor class of businesses). Additionally, a higher amount was charged for Takaful coverage and wakalah fees for Family Takaful (+RM189mil) in line with the stronger volume for credit-related business (bancatakaful for personal and mortgage financing).

• 1Q24 saw an increase in takaful service expenses by 44.5% YoY to RM831mil, contributed by higher incurred claims and other service expenses as well as an increase in acquisition expenses (amortisation of wakalah fees).

• Takaful service results climbed 8.6% YoY to RM53mil in 1Q24. This was contributed by higher release of CSM and underwriting profits for contracts measured under PAA.

• As of end-1Q24, the group’s CSM stood at RM1.32bil, an increase of RM76mil or 9% YTD. This was mainly attributed by RM58mil (+RM8mil or 16% YoY) in CSM from new business and RM94mil adjustments from changes in estimates. In 1Q24, total CSM released was RM64mil (+RM7mil or 12% YoY).

• The group’s net investment income climbed 30.1% YoY to RM159mil in 1Q24. This was largely contributed by higher profit income from fixed income investments and fair value gains for family takaful. Also, general takaful business recorded a higher profit income from fixed income securities.

• The increase in the group’s net takaful financial results to -RM60mil in 1Q24 vs. -RM41mil in 1Q23 was due to the unwinding effect of an increase in contractual liabilities as result of business growth.

• Profit attributable to participants rose by RM38mil to RM63mil (Family Takaful: RM66mil and General Takaful: - RM3mil) in 1Q24 vs. RM24mil in 1Q23.

• The stock is trading at an attractive FY24 P/BV of 1.7x with a decent dividend yield of 4.1%.

Source: AmInvest Research - 28 May 2024