TAKAFUL’s 9MFY21 CNP of RM255.7m came below both our/consensus’ estimates at 68%/67%, due to slower recovery of net earned premium (NEP) on movement restrictions. However, we anticipate swift recovery in 4QFY21 on premiums and cost improvements. We reduce FY21E CNP by 7% on lower NEP. Maintain OP with an unchanged TP of RM5.85 @ FY22E PBV of 2.5x.

Below expectations; temporary hiccup. 3QFY21 registered a core net profit (CNP) of RM72.7m (-11% QoQ; -12% YoY), bringing 9MFY21 CNP to RM255.8m (-2% YoY). This is below our/consensus’ estimates at 68%/67% due to slower-than-expected recovery of NEP. Absence of dividend is as expected.

Results’ highlight. YoY, gross earned premium (GEP) rose 9% from stronger Family Takaful (+7%) and General Takaful (+14%), both affected by MCO 1.0. However, a 21% increase in surplus to takaful operators/participants erased the gains, resulting in a 2% decline in CNP. QoQ, 3QFY21 CNP fell (-11%) stemming from: (i) a slip in GEP (-1%) attributable to weaker Family Takaful (- 14%), and (ii) higher combined ratio (+2.0ppt).

Anticipating a swift recovery in 4QFY21. The lingering impact from movement restrictions on premiums in 3QFY21 were exacerbated by higher combined ratio. However, we think a swift recovery is on the cards for 4QFY21 (a similar trend after 2020’s movement restrictions) and we expect improvement in both premiums and combined ratio.

Reduce FY21E CNP by 7% on lower NEP (-4%).

Maintain OP with an unchanged TP of RM5.85 @ FY22E PBV of 2.5x, reflecting -0.5SD from mean justified by: (i) market leader status in Islamic insurance, (ii) strong ROE of >20%, and (iii) dividend yield of 5.4%.

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

Source: Kenanga Research - 24 Nov 2021