• The Family bancaTakaful and General bancaTakaful service agreements were renewed between Syarikat Takaful Malaysia Keluarga (STMK) with RHB Islamic Bank on 28 July 2020 for a period of 5 years.
• This requires payment of upfront facilitation fees of RM145m from the Family unit and RM6m from the General unit.
• Our earnings forecasts were revised down by 6-7% as we factor in the amortization impact of the fees. We reiterate BUY on STMK, with our Target Price revised to RM5.10 (based on a P/BV of 2.8x 2021E BVPS).

Renewal of 5-year bancaTakaful service agreements with RHB Islamic Bank

Syarikat Takaful Malaysia Keluarga announced that it has renewed the Family bancaTakaful service agreement and the General bancaTakaful service agreement with RHB Islamic Bank on 28 July 2020, for a contract period of 5 years, commencing 1 Aug 2020. These agreements involves payment of a facilitation fee of RM145m from the Family unit and RM6m from the General unit. RHB Islamic Bank had agreed to continue selling, distribution, marketing and promoting the Family credit Takaful products as well as general Takaful products of STMK.

-6.1% to -6.9% revisions forecasts to account for the amortization of fees

Though we have factored-in the impact of a potential renewal of the banca agreements on revenue, the cost of the facilitation fees have not been taken into account. As such, we make some revisions to our earnings for 2020E-22E, in the region of -6.1% to -6.9% as we take into account the 5-year amortization impact of the .

Reiterate BUY, with our Target Price revised to RM5.10

Maintain BUY with our Target Price revised to RM5.10, based on 2021E target P/BV of 2.8x (2021E ROE at 26% and cost of equity at 11.2%). We expect: a 34% yoy recovery in 2021E PATAMI as we project a rebound of 14% yoy in the ‘gross-earnedcontribution’ of the Family and +5% yoy at the General unit. We believe that STMK will stay resilient, underpinned by the group’s competitive edge as the preferred Takaful partner, its lower-than-industry claims ratio, the shift towards Islamic banking and the online business. Downside risks: weaker Takaful sales as economic growth remains subdued, higher claims ratio, weak housing market.

Source: Affin Hwang Research - 29 Jul 2020