INVESTMENT HIGHLIGHTS

• Interest to acquire Asuransi Takaful Umum

• Disposal decision was made due to limitations on capital requirement

• No material financial and operation effect in FY17

• We maintain our earnings forecast

• Unchanged TP at RM4.90

Proposed disposal of Asuransi Takaful Umum (“ATU”). ATU is held indirectly by STMB with 64.7% effective equity interest. The company is incorporated in 1994 with principal activity in general takaful business. Some of the products offered by ATU include protections for motor, engineering and personal accident. Interest to acquire was made by Koperasi Simpan Pinjam for a total consideration of RP7b (~RM2.2m).

Board of Directors of STMB accepted the buyer’s offer. After careful deliberation, the board has decided to accept the offer made by Koperasi Simpan Pinjam. However, it is still subject to the approval of Indonesian’s Financial Services Authority and the shareholders of ATU. “The Proposed Disposal is in respect of the entire equity interest in ATU by Syarikat Takaful Indonesia, Asuransi Takaful Keluarga and Koperasi Karyawan Takaful. i) 26,335 shares (52.67%) held by STI; ii) 23,540 shares (47.08%) held by ATK; and iii) 125 shares (0.25%) held by Kopkar.” Source: Bursa Malaysia

Proposed disposal was due to limitations and constraints

especially in terms of capital requirement. The presence of numerous takaful ‘Islamic window’ operations in Indonesia has put the full-fledged Shariah compliant operators at a significant disadvantage. More often than not, a pure Takaful operator needs to incur higher operating cost, from higher management fees in comparison to its competitors. With various limitations, coupled with the lack of technical resources and expertise, ATU is viewed to be no longer self-sustaining. The best available option for STMB is to accept the offer from Koperasi Simpan Pinjam Jasa (“KOSPIN”). We note that STMB’s indirect cost of investment in ATU is RM9.8m. As at 30 September 2017, the carrying value is RM6.3m.

Valuation. The Proposed Disposal will not have any material financial and operational effects on STMB and its group of companies for FY17. Despite the disposal, we do not think the exercise will justify a re-rating to the STMB FY18 earnings’ valuation. This is considering that that the total contribution from STMB Indonesian operations to the Group’s bottom line only recorded less than 1% of the total PBZT. At this juncture, ATU will continue its existing block of the business pending the approval of proposed acquisition. In the meantime, the takaful industry in Indonesia is expected to continue experiencing challenges due to economic scenarios. However, the group remain optimistic to enhance its Indonesian Family Takaful business, operated under the name of Ansuransi Takaful Keluarga, and market share with support from its distribution channel.

Recommendation. Moving forward, we view the demand for STMB’s takaful products to continue to be resilient especially in Malaysia. This is premised on the company strong presence in the takaful market especially for Family Takaful, with the largest market share. Taking into account the low life/takaful penetration rate circa 56.2% (vs 75% target by 2020) and the group’s ongoing developments to upgrade customer service via its digitalization plan, our outlook for the group remain positive. As such, we maintain our BUY call on the stock with TP of RM4.90 (pegging its FY18EPS to PER of 19x).

Source: MIDF Research - 6 Nov 2017