INVESTMENT HIGHLIGHTS

• Syarikat Takaful posted earnings of RM119.7m in 1HFY18

• Overall operating revenue posted growth

• Combined ratio was stable

• Maintain BUY with an unchanged TP of RM4.44

Syarikat Takaful recoded earnings of RM50.0m for 2QFY18. The cumulative earnings in 1HFY18 came in at 52.0% and 53.4% of ours and consensus full year estimates. On quarterly basis, there was a net addition of RM50.0m of PAZTAMI in 2QFY18 earnings, bringing the total earnings in 1HFY18 to RM 119.7m. This marked a notable improvement of +18.3%yoy.

Overall operating revenue posted growth. Operating revenue in 1HFY18 was higher by +13.0%yoy to RM1.3b. This was due to the increase in income generated by both Family and General Takaful business attributable to higher net wakalah fee income. Notably, its general takaful business was the main growth driver, with income rose by +26.0%yoy primarily in the fire and motor classes. While the revenue trend had been encouraging, we noted that profits were largely moderated by higher net benefits and claims of +40.0%yoy. This was due to higher expenses in fire and motor classes.

Family takaful recorded decent improvement in 1HFY18. Income from family takaful was higher by +5.0%yoy in the quarter. This was driven by higher sales of credit-related products, to record gross earned contributions of RM674.1m. In terms of net benefits and claims, it increased by +3.0% to RM370.7m following the increase in surrender and medical claims. While net benefits and claims remain a risk to profitability moving forward, we are optimistic that contributions are likely to expand further, supported by the group’s marketing effort to reach wider market. Accordingly, we believe that this will be driven by its strategic initiatives in the digital space.

Combined ratio seemed stable. The cumulative total of net claims and benefits was higher in 1HFY18, increasing by +9.0%yoy to RM486.7m from the same period last year. Despite the increase, claims ratio declined marginally by -1.1ppts. This was following the higher growth in net earned contributions in the period by +11.1%yoy. Coupled with a flat management expenses ratio in 1HFY18, the overall group’s combined ratio showed an improvement. It declined by -2.1ppts yyoy to record a ratio of 71.4%.

Source: MIDF Research - 30 Jul 2018