INVESTMENT HIGHLIGHTS

• The Takaful sector to continue registering double-digit growth throughout 2016 and 2017.

• The Group is set to continue tapping into huge opportunity in the Islamic finance market.

• We retain our FYs earnings forecasts as the potential growth has already been factored in.

• Hence we reaffirm our BUY recommendation with higher TP of RM4.84 after rolling over our valuation to FY17.

NEWS

Takaful sector to continue grow at double digit rate. It was highlighted in the media recently that Malaysia’s takaful sector growth is still ahead of the country’s economic growth, indicating a positive outlook for the sector, as mentioned by CEO of the Malaysian Insurance Institute (MII) Datuk Syed Moheeb Syed Kamarulzaman. The Takaful sector registered a growth rate of about 10% in 2015, compared with the conventional insurance sector’s growth rate of just 2% in the same period. The sector’s double-digit growth will likely continue throughout 2016 and 2017, as the industry is expected to be reshaped in response to the requirements of the decoupling of licences under the Islamic Financial Services Act 2013.

OUR VIEW

The growth rate is line with our expectation. We were not surprised by the news as we have already projected the Takaful sector to grow at a similar pace of approximately 10% for both CY16 and CY17. This is on the expectation of pick-up in Takaful penetration rate that will be backed by the continued growth of domestic Islamic finance industry, which embarked on a target of 40% market share by 2020. We expect ther will be positive spill over effect into STMB and will boost their opportunity to tap into this market. We understand that the Group is pushing for more employees benefit and bancaTakaful businesses specifically on personal financing and mortgage reducing term takaful for go-forward strategy.

Impact on earnings. Summing up, we retain our FY16 and FY17 financial forecasts as the potential growth has already been factored in.

Recommendation. We reaffirm our BUY recommendation with higher TP of RM4.84 after rolling over our valuation into FY17. Our valuation is derived based on sum-of-parts, which implies FY17 PER of 20x and PBV of 5.4x

Source: MIDF Research - 24 Nov 2016