Investment Highlights

• We maintain BUY on Syarikat Takaful Malaysia Keluarga (STMK) with a higher fair value of RM4.70/share from RM4.40/share previously after rolling forward our valuation to FY25F. We peg the stock to FY25F P/BV of 1.

• Our net profit estimates are unchanged as 6M24 net profit of RM196mil were within expectations, accounting for 52.9% of our full-year estimate and 50.3% of consensus’.

• 2Q24 earnings were lower at RM94mil (-8.4% QoQ) contributed by lower takaful service results attributed to the positive experience variances of its general takafu business.

• 6M24 net profit grew 5.5% YoY, driven by higher ne investment income partially offset by lower takaful service results and an increase in net takaful financial results.

• Gross contributions for general takaful rose by 13% YoY, led by growth in fire and motor. Meanwhile, gross contributions of family takaful increased by 20% YoY driven by credit related products.

• Takaful revenue rose by 22.8% YoY to RM1.69bil, supported by higher release of contractual service margin (CSM) o RM6.6mil and increase in contribution releases o RM143.2mil (mainly from General Takaful’s fire and moto class of businesses). Additionally, a higher amount was charged for takaful coverage and wakalah fees for Family Takaful (+RM159mil) in line with the stronger volume o credit-related business (bancatakaful for personal and mortgage financing).

• 6M24 saw an increase in takaful service expenses by 35.9% YoY to RM1.6bil, contributed by higher incurred claims and other service expenses, higher losses on onerous contracts due to a model change and changes to liabilities for incurred claims.

• Takaful service results fell by 27.

• As of end-2Q24, the group’s CSM increased by RM9mil YTD or 0.7% to RM1.23bil. CSM of mortgage/personal financing comprised largely of the total balance a RM692mil/RM406mil. RM114mil of new business CSM and RM26mil adjustments were recognised from changes in estimates. YTD, total CSM released was RM123mil.

• The group’s net investment income climbed 37.2% YoY to RM345mil in 6M24. This was largely contributed by highe fair value gains from a better equity performance for family takaful.

• The group’s net takaful financial results worsened to -RM125mil in 6M24 vs. -RM85mil in 6M23 due to the unwinding effect of an increase in takaful contractual liabilities.

• Profit attributable to participants rose by RM54mil to RM148mil in 6M24.

• The stock is trading at an attractive FY25F P/BV of 1.5x with a decent dividend yield of 4.3%.

Source: AmInvest Research - 2 Sep 2024