• Although STMK’s 9M23 net profit (NP) accounted for 79% of our full-year forecast, we deem it in-line, ahead of our expectations for a weaker 4Q23F.

• We expect 4Q23F NP to fall 20.4% qoq as we think the robust net investment income (NII) achieved in 3Q23 will not be sustainable.

• Reiterate Add on STMK, given the swift expansion in revenue and our projected strong 3-year CAGR of 10.5% for EPS in FY22-25F.

9M23 NP Within Expectations; Expecting a Weaker 4Q23F

Although Syarikat Takaful Malaysia Keluarga’s (STMK) 9M23 NP of RM276.6m accounted for 79.2% of our full-year forecast (78.4% of Bloomberg consensus estimate), we regard the results in-line, as we expect a weaker 4Q23F NP. This is because 4Q is seasonally the weakest quarter for STMK, and we think the NII which jumped 55.6% yoy in 9M23 would not be sustainable in the longer term.

Riding on a 20.8% Yoy Topline Growth in 9M23

We have a positive view on STMK’s ability to maintain its strong topline growth. Its takaful revenue expanded by a swift 20.8% yoy in 9M23. The growth was strong for both of STMK’s major segments in 9M23, namely family takaful at +19.6% yoy, and general takaful at +25.9% yoy. In our view, this was the culmination of the increased business contributions from its bancatakaful collaboration with several banks that began 2-3 years ago.

Solid NP Growth in 9M23

STMK achieved a strong NP growth of 28.2% yoy in 9M23, underpinned by swift expansion in revenue and a spike in NII. The NP growth was also robust at 20% yoy in 3Q23, on the back of a 27.5% yoy increase in revenue.

Projecting a 20.4% Qoq Drop in 4Q23F NP

We project a NP of RM72.5m for STMK in 4Q23F, representing a 20.4% qoq decline. The qoq decline, in our view, would come from lower NII as we think that the robust NII in 3Q23 is not sustainable. 4Q23 revenue could also decline qoq due to seasonal factors (slower business activities towards the year-end).

Reiterate Add on STMK

We maintain our Add call on STMK, premised on the potential re-rating catalysts of (1) robust expansion in takaful revenue, and (2) our projected strong 3-year CAGR of 10.5% for EPS in FY22-25F. The potential downside risks would be a drastic slowdown in revenue growth and a spike in operating expenses. We maintain our FY23-25F EPS forecasts but raise our DDM-based target price (TP) from RM3.96 to RM4.50 (cost of equity of 10.4%; terminal growth rate of 4%) as we roll over our TP to end-CY24F.

Source: CGS-CIMB Research - 23 Nov 2023