• Syarikat Takaful Malaysia Bhd (STMB)’s 6MFY17 PAZTAMI of results came in within ours and consensus’ estimates

• Wakalah fee income trended higher

• We make no changes to existing forecast numbers as the result is within estimates

• We maintain our BUY stance with an unchanged TP of RM4.90 per share

Within consensus. STMB’s 6MFY17 result came in within ours and consensus’ expectation at 51.9% and 52.1% of respective full year estimates. The cumulative earning was up by +10.0%yoy to RM101.20m. However, the 2QFY17’s was down by -2.0%yoy to RM44.40m, coming from higher taxation.

Growth in Wakalah fee income. The group achieved higher 2QFY17 profits before zakat and taxation of RM59.1m, +2.0%yoy, in comparison to RM58.1m for the same period last year. This positive variance is attributable to higher net wakalah fee income.

General Takaful as main driver. The group saw a climb in its revenue due to increase in sales for family takaful and general takaful segment. Sales were up by +5.0%yoy to RM485.3m, with segmental contribution largely coming from General takaful. Such gains from the General segment were underpinned by higher gross earned contribution from fire and motor classes. It is also worth noting that Family Takaful partly contributed to the higher gross earned contribution via its mortgage-related product. Pursuant to that, we believe that the positive trend will eke out for the rest of the year as Syarikat Takaful edges up their market share through customer reach and operational efficiency.

Maintain forecast. We maintain our earnings forecast at this juncture. However, we understand some downside risks may pose negative surprise in earnings for the next quarters. These includes; 1) higher than expected claims ratio 2) lower than expected underwriting profit coming from stiff price war 3) higher than expected combined ratio especially from motor segment.

Recommendation. We maintain our BUY call on Syarikat Takaful Malaysia with an adjusted TP of RM 4.90 pegging its FY18F EPS to PER of 19x. Our TP adjustment stemmed from our optimism of seeing higher contribution from the overall takaful.

Source: MIDF Research - 21 Jul 2017