Investment Highlights

• We maintain HOLD on Malayan Banking (Maybank) with a revised fair value (FV) of RM10.80/share from RM9.90/share after rolling forward our valuation to FY25F BV with a 3% premium based on an unchanged 4-star ESG rating. We peg the stock to P/BV of 1.3x supported by FY25F ROE of 10.8%.

• No changes to our net profit estimates.

• We attended Maybank’s Investor Day yesterday which management provided updates on the financial performance as well as focus and direction on Etiqa, the group’s insurance arm.

• Etiqa is ranked 11th largest in ASEAN. It has the largest presence in Malaysia and Singapore. Also, it operates life and general insurance businesses in Cambodia and Philippines. Meanwhile, in Indonesia, Etiqa owns a license to operate the general insurance business.

• In Malaysia, Etiqa is No.1 in bancassurance/bancatakaful and ranked the top online insurer and takaful operator. Domestically, the mix of life and general insurance in the total business portfolio is well balanced at 50:50.

• Etiqa has a wide distribution network in Malaysia, with the bancassurance business leveraging on Maybank’s >350 branches. Bancassurance contributed 41% of Etiqa group’s gross premium/contribution in FY23. The insurance arm has more than 10,000 agents, 25 brokers, 24 branches and a 53% market share in online general insurance business.

• Financial performance of Etiqa Group has improved in FY23 with a PBT of RM1.1bil (+133.7% YoY), supported by Malaysia’s operations and a recovery in Singapore’s profitability. Recall in FY22, Etiqa Singapore suffered losses from product designs and investments in China property bonds. We understand that these bonds have already been disposed of and the group is now focussing on growing regular premiums and investment-linked (IL) products in Singapore. In 1Q24, Etiqa Group continued to record improved earnings with a PBT of RM285.4mil (+19.5% YoY), underpinned by strong topline lifted by the bancassurance business of life and family takaful coupled with improved investment income. New business value of Etiqa Life/Family takaful rose 59.8% YoY to RM76mil in 1Q24.

• Etiqa is the top general insurance and takaful provider with a market share of 16.1% in Malaysia. It is ranked 2nd in fire and motor class of business and 1st in marine, aviation, transit (MAT), personal accident (PA) and miscellaneous segments.

• Etiqa General recorded a 6-year (2017-2023) CAGR in gross premium/contribution of 10.7%, outpacing the industry’s 4.9%.

• In the general insurance/takaful business, we gather that capturing economies of scale, focusing on profitable business segments and managing cost are key drivers of profitability. Etiqa Group will focus on profitable motor segments to grow its surplus. Its targeted preferred segments for motor are SUVs and higher value cars. We understand that stronger engagements with customers and strengthening digital tools to deliver better customer self-service are also key to improve its earnings. The group will be collaborating with partners and customers to pay authentic claims faster. This includes paying car workshops higher for labour charges for better motor repair work. This has resulted in a slightly higher motor loss ratio than the industry by 3%-4% and yet achieve an improved profitability for the overall business on the back of delivering better service experience to the customers. On motor insurance, the group offers cash rebates up to 30% to motor policy holders with low mileages in driving under the campaign ‘Drive less save more’. Customers can use the Etiqa+ mobile app to view their policies, buy insurance/takaful online, make travel claims and request for guaranteed letters.

• In life insurance/family takaful space, Etiqa is ranked 3rd in the industry, and aspires to improve the ranking to 2. Etiqa Life/Family recorded a 6-year (2017-2023) CAGR in gross premium/contribution of 10.6%, above the industry’s 8%.

• For life insurance and takaful, the focus will be to generate stronger new business value via bancassurance/agency channels and exercise prudence on investments.

• Digitalisation tools for business partners, i) Banca Ease (app for bank salespersons), ii) Agency Ease (app for life and family takaful agents), and iii) the general “Agent-On-The-Go” (app for general agents) have improved the growth in premium/contribution.

• Overall, we are seeing the GWP of insurance/takaful business gaining traction with a rebound in Etiqa Singapore’s profitability. With 4.2mil Etiqa customers and 12.3mil Maybank Group customers, there remains ample room for the insurance arm to penetrate new clients.

• We expect insurance claims to stay elevated due to the effects of continued weakness in domestic currency. The USD is expected to remain strong in 2H24 with elevated Fed rates sustaining a wide interest rate differential. We foresee medical inflation to remain high in 2H24. For general insurance/takaful, motor claims are envisaged to continue to be high due to the weaker ringgit, which will impact the cost of parts replacement.

• On ESG, the group will not underwrite any protection coverage for greenfield coal power and generation plants.

• The stock is trading at 1.2x FY25F P/BV, hence we continue to see limited upside of less than 10%. We prefer CIMB Group (FV: RM7.10/share) for exposure to larger cap banking stocks, premised on stronger potential earnings growth from the narrowing losses of digital businesses and optimised operating expenses. Additionally, the stock’s higher liquidity is seen as attractive to foreign investors. Potentially, uplift to CIMB’s ROE is envisaged from an optimisation of capital.

Source: AmInvest Research - 5 Jul 2024