TAKAFUL’s 1QFY24 results met expectations. With sustained demand for its products, we believe the stock could be further highlighted for its relatively lower exposure to detariffication- spurred competition. Maintain our forecast but raise our TP by 13% to RM4.35 as we roll over our valuation base year and upgrade it to OP (from MP). We feature TAKAFUL as one of our Shariah Top Picks.

Within expectations. TAKAFUL’s 1QFY24 net profit of RM102.3m came in at 28% of our full-year forecast and 26% of consensus full-year estimate.

YoY, 1QFY24 takaful revenue surged 40% mostly from gains in Family Takaful (from an increase in coverage) while General Takaful products also saw stronger traction from its fire and motor class products. However, net profit for the period only grew by 10% as service results were met with higher comparative claims in addition to amortisation of acquisition cash flows for wakalah fees.

QoQ meanwhile saw lower takaful revenue (-10%) but saw net profit spike by 46% thanks to fewer retakaful charges and better investment income on more robust trading conditions.

Outlook. TAKAFUL’s products stay highly relevant, upheld by rising economic prospects. Its core offering lines of Bancatakaful, Treasury, Employee Benefits and General Takaful stay boosted by its increasing digital adoption for higher market penetration while maintaining traditional channels. Based on its portfolio of products, we continue to view TAKAFUL to be less at risk to price competition arising from the liberalisation of fire class insurance.

Forecasts. Unchanged.

Valuations. We raise our TP by 13% to RM4.35 (from RM3.85) as we roll over our valuation base year to FY25F on an unchanged 1.7x PBV. This comes at a discount against the industry average PBV of 2.1x on the back of: (i) lower net margins of 11% (vs peer’s 17%), and (ii) lower dividend returns of 4%-5% (vs peer’s 6%-7%).

However, TAKAFUL’s lower sensitivity to detariffication is further emphasised with the strong growth seen in its other business segments. On the other hand, its leading ROE against peers could make up for its softer performing metrics. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Upgrade to OUTPERFORM from MARKET PERFORM as TAKAFUL’s risk-reward profile appears highly favourable at current price points. We feature TAKAFUL as one of our Shariah Top Picks.

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

Source: Kenanga Research - 28 May 2024