The 60%-owned Syarikat Takaful chalked in 1Q19 bottom-line of RM96m (+7% QoQ, +38% YoY), beating expectations. The robust showing came mainly on the back of strong premium growth. Thus, we raise our FY19-20 earnings forecasts by 2% and introduced FY21 estimates. Overall, the long-term prospects of the takaful industry remain rosy. In our view, BIMB’s current risk-reward profile is still favourable. Retain BUY but with a higher GGM-TP of RM5.20 (from RM5.00), based on 1.60x 2019 P/B.

Above expectations. Syarikat Takaful’s (60%-owned) 1Q19 net profit grew 7% QoQ to RM96m (+38% YoY). This is above estimates, making up 31-32% of our and consensus full-year forecasts, respectively. The business contributes c.30% to BIMB’s PBT.

Dividend. None declared as Syarikat Takaful only divvy in 4Q.

QoQ. 1Q19 net profit rose 7%, thanks to robust gross premium (+7%) at its general takaful business (+23%) given higher sales of motor and commercial-related products. Also, mark-to-market gains of RM21m (vs. a loss of RM31m in 4Q18) and lower claims (-2%) helped to lift profitability. However, the rise in management expense (+10%), other opex (+94%) and surplus to takaful operator/participants (+22%), mitigated the overall performance.

YoY. Gross premium jumped 40% on the back of better credit-related products sales at its family takaful business (+55%). This coupled with lower claims (-1%) trickled down to operating profit, leading to a whooping growth of 180%. However, the 27-fold spike in surplus to takaful operator/participants, capped bottom line from rising at a faster pace (+38%).

Outlook. Long-term prospects for the takaful industry is rosy, backed by positive structural drivers like: (i) an underpenetrated market; (ii) rising medical inflation; and (iii) flourishing Islamic banking sector. Also, the full-year impact of its bancassurance tie-up with Bank Rakyat (which began in 3Q18) is expected to anchor 2019’s premium growth (10-15%); this is done through credit-related products as seen in its 1Q19 results. Without a similar effect in 2020, this should normalize back to mid- to high single digit % level; CAGR from 2013-18 was 8%.

Forecast. With the results beat, we raise our FY19-20 earnings by 2% after factoring in higher income from its takaful business (+3%). Furthermore, we introduce our FY21 estimates.

Maintain BUY with a higher GGM-TP of RM5.20 (from RM5.00), following our earnings increase and based on 1.60x 2019 P/B (from 1.52x) with assumptions of 14.5% ROE (from 13.9%), 10.6% COE, and 4.0% LTG. This is in line to its 5-year mean of 1.56x but above the sector’s 1.15x. The premium is fair given its 4ppt above average ROE generation. Besides, from our reverse SOP assessment, we calculated the market is now only valuing Bank Islam (100%-owned) at 1.00x P/B with 10-11% ROE vs. peers at 1.15x P/B with 10% ROE, implying there is still upside from current levels.

Source: Hong Leong Investment Bank Research - 26 Apr 2019