STMB has entered into two new separate 5-year family and general bancatakaful agreements with RHB Islamic Bank. Although it came at a heftier price-tag (3x more), it is a worthwhile ‘investment’, in our opinion, since they had generated c.RM200m of gross earned contributions p.a. for STMB in the past. Overall, our forecasts are unchanged. We turn positive on STMB as valuations have become undemanding vs historical levels (trading at 1.5SD P/B), suggesting most of the negatives dragging its short-term growth have been priced-in. Upgrade to BUY with an unchanged GGM-TP of RM5.00, based on 2.96x FY20 P/B.

NEWSBREAK

Syarikat Takaful Malaysia Keluarga (STMB) has entered into two separate family and general bancatakaful agreements with RHB Islamic Bank. These are for a period of 5 years commencing 1st August 2020. Also, STMB will have to pay a total of RM151m as facilitation fees and it will be amortized over the duration of the partnership (instead of RM45m if extended from the earlier 2015’s deal).

HLIB’s VIEW

No surprises, considering STMB rekindled their bancatakaful relationship with RHB Islamic. Although it came at a heftier price-tag (3x more), we believe it is a worthwhile ‘investment’ as we guesstimate these agreements had generated c.RM200m of gross earned contributions p.a. for STMB in the past (high-level calculations, using 2018’s data points); without RHB Islamic contribution in our forecasts, we would have to cut FY20-22 net profit by 3-6%.

Forecast. Unchanged as this was largely expected and quarterly financial reporting is just around the corner.

Raise to BUY (from Hold) but with an unchanged GGM-TP of RM5.00, based on 2.96x FY20 P/B with assumptions of 26.0% ROE, 10.8% COE, and 3.0% LTG. This is below its 5-year mean of 3.50x but above the sector’s 1.61x. The discount is fair as its ROE output is 2ppt below the 5-year average while the premium to peers is warranted given (i) it is one of the leaders in the Islamic insurance industry, (ii) being the only pure listed takaful operator on Bursa Malaysia, and (iii) generates strong ROE (9ppt higher vs industry average). Overall, we turn more positive on STMB, seeing its recent share price weakness and valuations is undemanding vs historical levels (trading at 1.5SD P/B), implying most of the negatives dragging its short-term growth have been priced-in

Source: Hong Leong Investment Bank Research - 29 Jul 2020