TAKAFUL’s 1HFY21 CNP of RM182.9m is within our/consensus’ estimates at 49%/48%. Lingering impact from movement restriction will be felt in 3QFY21. Thereafter, recovery could be swift as economic reopening gains traction. Raise FY22E CNP by 13%. Maintain OP with an unchanged TP of RM5.85 @ FY22E PBV of 2.5x (from 2.6x).

Within expectations. 2QFY21 registered a core net profit (CNP) of RM81.8m (-19% QoQ; +8% YoY), bringing 1HFY21 CNP to RM182.9m (+3% YoY). This is within our/consensus’ estimates at 49%/48%. Absence of dividend is as expected.

Results’ highlight. YoY, 1HFY21 CNP increased (+3%) on the back of an 18% increase in gross earned premium (GEP) mainly from stronger Family Takaful

(+20%; low base from MCO 1.0) and lower combined ratio (-4.2ppt). However, a 68% increase in surplus to takaful operators/participants largely erased the gains, resulting in a mediocre 3% improvement in CNP. QoQ,  2QFY21 CNP fell (-19%) stemming from: (i) lower GEP (-8%) due to weaker Family Takaful (-8%) and General Fund (-10%) as a result of movement restrictions, and (ii) higher surplus to takaful operators/participants (+26%).

Recovery beyond 3QFY21. While we believe 3QFY21 could still see some impact to premiums from the movement restrictions, this could be mitigated by lower claims ratio and digitalisation. Through the group’s digitalisation efforts, operational challenges during the movement restrictions are minimized. Thereafter, we think a swift recovery is on the cards for 4QFY21 (a similar trend to 2020’s movement restrictions).

Keep FY21E CNP unchanged, but raise FY22E CNP by 13% on lower claims-to- GEP ratio of 38% (vs. 43% previously).

Maintain OP with an unchanged TP of RM5.85 @ FY22E PBV of 2.5x (from 2.6x), reflecting -0.5SD from mean justified by: (i) market leader status in Islamic insurance, (ii) strong ROE of >20%, and (iii) dividend yield of 4.4%.

Risks to our call include: (i) lower premium underwritten, (ii) higher-than- expected claims incurred, (iii) higher-than-expected management expense ratio, (iv) further wave of pandemic, and (iv) slow distribution of vaccines.

Source: Kenanga Research - 26 Aug 2021