We came away from TAKAFUL’s analysts’ briefing feeling reassured on the near-term outlook. Already leading the Family and General Takaful industry, further upsides could come from: (i) bancassurance partnerships, (ii) growing digital presence, and (iii) opportunities in the employee benefits space. Maintain OP with a higher TP of RM6.00 (from RM5.25), implying a 12.4x FY20E PER, as we revise up our earnings and roll forward our valuation base year to FY20E.

2018 closed with a bang. Recall that its 12M18 results beat our estimate, and consensus’, at 111% of full-year expectations. The solid results appear to be drawn by the strengthening of single-premium creditrelated product sales (estimated to be c.50% of gross premiums), backed by wider bancassurance partnerships and coverage. During the briefing, we gathered from the management that the group has established itself as the preferred insurance partners for four major Islamic banking institutions. We see that contributions from this segment could be poised for high growth backed by Bank Negara’s target of increasing the country’s Islamic finance mix to 40% by 2020 (2018 estimated at 32%).

Building up a digital presence. Expanding on its online distribution, the group intends to offer more flexible and innovative products to the market. Additionally, thanks to lower operating cost and commission charges, the group is able to share the savings with customers through discounted product prices. This move appears to have benefited General Takaful performances (i.e. motor insurances) sales, which management mentioned had aided against margin compressions pending from previous detariffication instances. Adding to this, we believe that having an online platform could also expand the group’s potential market reach to rural and sub-urban areas, which were previously logistically challenging with an agency force. Lower income groups could also be incentivised to undertake coverages given the cheaper price point.

Insuring employers. On other fronts, management aims to improve its standing as an insurer of employee benefits. We believe the move is to ease its exposure to less regulated segments, which could be based on commercial merits. To penetrate this space, the group aims to offer more value-added services to ease the tracking of claims by its clients’ insurees, with wellness programs being offered to promote healthy lifestyle and client engagement. Still, stringent underwriting is at play to ensure sustainable profits.

Still a leading player. Overall, TAKAFUL holds its leading position in the domestic Takaful insurance market, ranked first in the Family Takaful space but second in General Takaful in 2018. With the above aside, the group’s other insurance businesses (i.e. fire, term-insurances, investment linked products) would be supported by its growing agency force. As the group’s premium inches to a higher base (especially from higher bancassurance and online channels), we may be able to see expense ratios easing on a leaner operating environment, fuelling bottom-line growth further.

Post-meeting, we raise our FY19E/FY20E earnings by 13.0%/12.9% mainly to capture the abovementioned merits.

Maintain OUTPERFORM with a higher TP of RM6.00 (from RM5.25, previously). We roll over our valuation base year to FY20E. We also relook our ascribed Fwd. PER/PBV ratio, adjusted to 15.0x/3.5x (from 15.0x/3.9x, previously) which is in-line with their respective 3-year Fwd. averages. The stock continues to command superior ROE of c.30% against the industry average of c.20%. Additionally, the stock appears to be facing fewer headwinds as compared to other insurance players due to their well-diverse product mix and strong direction of the nation’s Islamic banking landscape.

Source: Kenanga Research - 24 Apr 2019