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Syarikat Takaful Malaysia Bhd - Staying Ahead In Human Capital

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Publish date: Mon, 18 Mar 2013, 09:39 AM
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Syarikat Takaful Malaysia (STMB) announced its proposal to establish a 10-year long-term incentive plan (LTIP) to reward its key employees and directors. This will help the company to stay on a competitive edge amid an increasingly acute talent shortage in the local takaful industry. Maximum new shares will be 16.3m and our FV will be lowered to RM7.46 in the unlikely worst case scenario. STMB remains our top BUY for the sector.

Addressing human capital issues. Malaysia Takaful Association chairman Zainudin Ishak expressed that the takaful industry has long faced an issue of talent shortage, specifically in professionals technically versed in takaful principals. He also commented that the industry lacked the 'pulling factor' to attract the best talent. We have highlighted in our sector update that the incoming Islamic Financial Services Act (IFSA) may force many takaful players to split the family and general takaful businesses, therefore intensifying the future demand for key talents. As STMB is also expected to be impacted by the IFSA ruling, we are positive on the LTIP as it will help the company to stay on a competitive edge in the hiring of future key employees. We do not think the LTIP will be misused by any individuals as the IFSA has a provision to limit the individual ownership of insurers/ takaful operators at 10%.

Diversifying income channels. We note a string of news flows on corporate exercises which may involve Bank Islam and its expectations that loans growth moderate to 20%-25% from 38% in FY12. We do not see significant risks of STMB's reliance on Bank Islam (as a bancatakaful partner) to its near-term takaful contributions growth given that it still retains relationships with several other bancatakaful partners. The group is already diversifying its distribution channel by looking for more financial partners as well as expanding the role of its corporate agents and brokers.

Maintain BUY. Since we view human capital as a key growth driver, considering that the takaful industry is small and still at a young stage, the LTIP reassures us of STMB's valuations. Maintain BUY, with FV at RM8.00, pegged to its FY13 EPS.

Source: RHB
TAKAFUL (6139)
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