Journey to Wealth

Syarikat Takaful Malaysia - Still on Track

kiasutrader
Publish date: Wed, 21 Nov 2012, 10:32 AM

Syarikat  Takaful  Malaysia  (STMB)'s  9MFY12  core  net  profit  was  within  expectations,  accounting  for  68.3%  of  our  full-year  estimates  as  we  expect  a  stronger  4Q.  Wakalah  fees  continued  to  gain  traction,  especially  with  contributions  from  its  general  takaful  operations.  However,  earnings  were  dragged down by the uptick in expenses arising from higher personnel costs and  high  tax  expenses  along  with  some  non-deductible  operating  expenses.  Nevertheless,  as  we  believe  these  expenses  will  normalize,  the  group  should  record strong results for its fourth quarter. We make no changes to our forecast.  Maintain BUY, at RM8.00 FV.

Top-line contribution still sturdy. STMB's 9MFY12 core net profit surged 45.0% y-o-y,  boosted  by  significantly  higher  wakalah  fees  (+105.0%  y-o-y)  and  a  higher  transfer  surplus from its family takaful fund (+56.9% y-o-y). The general takaful fund experienced
a lower surplus into the shareholders level (-13.2% y-o-y), which is in line with our view,  but  this  was  offset  by  the  wakalah  income  contribution  from  the  general  fund  to  the  shareholder  level,  which  increased  from  RM26.9m  in  2Q  to  RM30.8m  in  the  quarter  under review.

Claims remain healthy. For the general takaful operations, the group's claims over net  earned  contributions  ratio  was  largely  healthy  at  56.9%  YTD,  while  that  in  the  family  takaful operation was largely maintained at 50.9% YTD.

Expenses  tick  up.  However,  on  a  sequential  basis,  earnings  slipped  29.2%  q-o-q,  largely  due  to an  uptick  in  the  group's expenses. Its management  expense  ratio  ticked  up to 21.2% YTD,  which we think was largely due to higher personnel costs. Likewise,  other  expenses  increased  by  30.9%  y-o-y,  largely  due  to  commission  expenses  amounting to RM96.9m which it incurred at the group level. Meanwhile, STMB's tax  expenses climbed in tandem with the increase in expenses due to certain non-allowable  expenses  income,  which  caused  the  tax  rate  to  inch  up  slightly  to  22%.  This  is  in  line  with our previous view that the Wakalah fee income upside may be accompanied by in  increase  in  management  and  commission  expenses  at  the  shareholder/operator  level.  Nonetheless, as we are of the view that the increase or defrayment in expenses is non-recurring, we expect expenses to normalize going into the next quarter.

Maintain  BUY. We  reiterate  our  BUY  call,  with  our  FV  retained  at  RM8.00,  pegged  to  12x FY13 EPS.
 Source: OSK
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