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Syarikat Takaful Malaysia - Wakalah Shines Again

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Publish date: Mon, 13 Aug 2012, 09:23 AM

Syarikat Takaful Malaysia (Takaful Malaysia)'s 1HFY12 annualized core net profit beat our expectations, accounting for 63.6% of our full-year estimates. The strong earnings  were  lifted  by  higher  wakalah  fees  and  surplus  transfer  from  its  family takaful business. While earnings were weaker q-o-q, we believe that the group can sustain its y-o-y growth momentum, largely due to the success of its bankatakaful tie-up.  We  are  thus  revising  up  our  earnings  estimates  for  FY12  and  FY13  by 13.8%  and  19.1%  respectively.  Given  the  24.6%  upside  to  our  revised  FV  of RM8.00, we upgrade the stock to BUY from NEUTRAL, pegged to a 12x FY13 EPS.
Family  takaful  forges  ahead.  Takaful Malaysia's annualized core net profit beat our numbers, accounting for 63.6% of our full-year estimates. Its core net profit grew 24.3% y-o-y, boosted by significantly higher wakalah fees (+117.4% y-o-y) and stronger top-line growth  (gross  contributions,  +53.4%  y-o-y).  however,  on  a  sequential  basis,  earnings slipped  18.0%  q-o-q  due  to  lower  surplus  transfers  from  its  family  takaful  business  (-56.3%  q-o-q),  largely  due  to  higher  than  expected  claims, which  was  in  line  with  our previous view.

Bankafakaful  tie-ups  meet  sweet  success.  We  gather  from  management  that  its bankatakaful  tie-ups  with  Malaysia  Building  Society  (MBSB,  BUY  '  FV  RM2.70)  and Bank  Islam  Malaysia  made  good  progress  as  its  partners were  aggressively  rolling out its group credit wakalah (takaful coverage for personal financing) and mortgage reducing term takaful (MRTT, similar to MRTA) products. We expect wakalah fees to continue to grow healthily, supported by its bankatakaful tie-ups.

Revising upwards earnings projections. We believe that Takaful Malaysia's strategic tie-up with MBSB will continue to fuel top-line growth as we are bullish on growth of the latter's personal financing loans. Also, we understand from management that it is currently  pitching  to  two  local  financial  institutions  in  relation  to  strategic  tie-ups  to expand the group's top-line by as much as RM500m a year. As the tie-ups have yet to be  firmed  up,  we  are  revising  higher  our  estimates  for  FY12  and  FY13  by  13.8%  and 19.1%  respectively  without  taking  into  consideration  the  potential  contribution  from  the new tie-ups.

Upgrade to a BUY. We are also revising upwards our target multiple to 12x from 10x, which  is  the  industry  average.  We  think  that  the  company  deserves  a  premium  to  the conventional industry's average PER as it has delivered consistent earnings as well as chalked up superior earnings growth, ROE and ROA. In view of the potential upside of 24.6% to our revised FV of RM8.00, we are upgrading the stock from NEUTRAL to BUY, pegged to 12x on FY13 EPS.
Source: OSK
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