INVESTMENT HIGHLIGHTS

• Syarikat Takaful Malaysia Bhd (STMB)’s 9MFY17 PAZTAMI 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 estimates. STMB’s 9MFY17 earnings came in within expectation. It accounts for 76.7% and 75.6% of ours and consensus full year forecast. The 9MFY17 PAZTAMI grew by +10.1%yoy to RM149.4m. The same trend was seen for the quarterly earnings where 3QFY17’s PAZTAMI staged a +8.7%yoy increment in comparison to the same period last year.

Supported by both Family and General Takaful business. Family takaful’s gross earned contributions grew by +5.1%yoy, attributable to higher demand for its mortgage related products. We also note that its net benefits and claims decreased by -12.0%yoy due to reduction in medical claims. On the other hand, general takaful business saw its gross earned contributions climbed higher by +8.9%yoy to RM413.1m with motor and fire products as primary contributors. In light of this, we view the demand for STMB’s general takaful product is still resilient given the higher net Wakalah fee income especially from General business, despite the pressure from BNM’s 2nd phase liberalization which commenced in July 2017.

Better combined ratio. The group’s combined ratio for 9MFY17 and 3QFY17 improved -5.6pptsyoy and -12.2pptsyoy respectively. Note that this was primarily driven by decreased medical claims from family takaful segment. Notably, the positive trend was in parallel with the group’s overall claims ratio, with -6.3pptsyoy and -10.5pptsyoy drop for 9MFY17 and 3QFY17 respectively. Moving forward, we view the Group’s combined ratio to remain healthy underpinned by its robust underwriting practice.

Impact to earnings. As the results came in within our estimates, we maintain our earnings forecast at this juncture.

Valuation and recommendation. Consequent to the result, we maintain our BUY call on Syarikat Takaful. Our TP remains unchanged at RM4.90 as we pegged its FY18 EPS to PER of 19x (1 standard deviation above its 5-year historical average). The higher than average industry’s PER is believed to be justified given the group’s strong presence in the Family Takaful market, with the largest market share coupled with the low life/takaful penetration rate circa 56.2% (vs 75% target by 2020). Consequently, we are optimistic that Syarikat Takaful will continue its forward momentum despite the growing competition following liberalisation. This is premised on its unique selling proposition of rewarding a 15% Cash Back to its General Takaful customers as well as its ongoing approach to upgrade its distribution channel via digitalization programme. We also view that the recent retracement of its share price makes the stock an attractive investment proposition.

Source: MIDF Research - 23 Oct 2017