INVESTMENT HIGHLIGHTS

• Syarikat Takaful Malaysia Bhd (STMB)’s FY16 PAZTAMI of RM176.3m (+13%yoy) were within our expectations

• The growth in 4QFY16 earnings was backed by strong sales from both Family Takaful and General Takaful business

• Premised on above, we make no changes to our existing forecast numbers

• Hence we reiterate our BUY recommendation with an unchanged TP of RM4.84 per share

FY16 PAZTAMI met expectations. STMB has continued to deliver solid PAZTAMI performance in FY16, where it grew +13%yoy to RM176.3m despite of challenging of macroeconomic conditions. The increase was as a result of higher Wakalah fee income of RM558.9m (+33.3%yoy) to the Group. Overall, the reported earnings came in line with ours and street expectations.

Sturdy 4QFY16 earnings growth in tandem with higher sales.

For 4QFY16, STMB’s PAZTAMI of RM39.3m was a sturdily +8%yoy growth, thanks to higher earned contributions from Family Takaful mortgage related products and General Takaful fire and commercial classes. However, it could have fared even better if it was not due to realised losses mainly from investment in equity, although this was partially offset by gains from investment in Sukuk.

Impact on earnings. As FY16 results fell within our expectation, we maintain our existing forecast numbers with an expectation of double digit earnings growth of 11% this year. This will be driven by pick-up in Takaful’s sector penetration rate on the back of continued growth of domestic Islamic finance industry. Pursuant to that, the Group is expected to continue focusing on employees benefit and bancaTakaful businesses specifically on personal financing and mortgage reducing term takaful. We also expect its digitalisation initiatives will enhance its distribution channel that may translate into stronger sales.

Recommendation. Accordingly, we reiterate our BUY recommendation with an unchanged TP of RM4.84 per share. Our valuation is derived based on sum-of-parts, which is in line with its 3-year historical FY17 PER of 20x and this implies PBV of 5.4x.

Source: MIDF Research - 25 Jan 2017