FY21 Core Net Profit (CNP) of RM345m (+2.3% YoY) is within expectations. As economic activity resumes, we foresee continued growth in its net earned premium, but also a normalization of the claims incurred ratio. We lowered our FY22E CNP by 11% from the one-off prosperity tax and introduce FY23E CNP of RM367m, representing a 16% growth (~3% if excluding the one-off tax). Maintain MP with an unchanged TP of RM14.20 @ PBV of 2.6x on FY22E BVPS excluding prosperity tax due to its one-off nature. Near-term upside is limited as the stock lacks catalyst, but dividend yield of ~5% provides a safety net.

Within expectations. 4QFY21 CNP of RM73m (-31% QoQ; -23% YoY) brought FY21 CNP to RM345m, within our and consensus expectations, making up 100% and 98% of forecasts, respectively. 4QFY21 DPS of 45.0 sen brings FY21 DPS to 74.0 sen, as expected. This represents an 85.5% payout (FY20: 85.2%).

YoY, FY21 CNP rose 2.3% despite a flattish 0.4% drop in net earned premium (NEP), as claims incurred ratio fell 4.7ppt, mainly as FY21 saw strict movement restrictions. NEP fell, mainly weighed by a lower Fire segment (-2.8%) but was supported by higher Motor (+2.3%) and Marine, Aviation & Transit (M.A.T.) (+3.9%) segments.

QoQ, 4QFY21 CNP fell 31% mainly due to a higher claims incurred ratio (+4.1ppt) on: (i) resumption of economic activities and lifting of movement restrictions in 4QFY21, and (ii) Dec 2021 flood claims. NEP inched up 0.2% on higher: (i) Fire (+4.1%) and (ii) M.A.T. (+6.5%) segments. The lower earnings were further exacerbated by a higher effective tax rate (+5.6ppt).

Outlook. Looking ahead into FY22, we expect NEP to gradually trend upwards on continued resumption of economic activity. However, we also expect the claims incurred ratio to normalize towards >40% (4QFY21: 37.7%) on resumption of economic activity.

Reduce FY22E CNP on prosperity tax, Introduce FY23E CNP. While earnings came within our expectations, we reduce our FY22E CNP to account for the one-off prosperity tax. We introduce our FY23E CNP of RM367m (+16% YoY from a low FY22E base), which represents a 3% growth without the prosperity tax. We maintain our FY22E DPS of 76.0 sen and introduce FY23E DPS of 78.0 sen, yielding 5.2% and 5.3%, respectively.

Maintain MARKET PERFORM with an unchanged TP of RM14.20 as we ascribe an unchanged PBV of 2.6x (implying 5-year mean) on FY22E BVPS of RM5.43, which does not include the impact of the prosperity tax, as we believe the market will likely treat the tax as one- off item. We think near-term upside is limited as the stock lacks catalyst. Its dividend yield of ~5% provides a safety net.

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

Source: Kenanga Research - 8 Feb 2022