STMB again exceeded our expectations, as its 9M13 net profit exceeded its  full-year  FY12  core  profit.  We  foresaw  a  weaker  topline  growth  as family  takaful  was impacted  by recent measures relating to  household debts. However, overall growth is unhindered, thanks to higher wakalah fees  and  controlled  expenses.  However,  we  note  that  general  takaful has yet to pick up pace. Maintain BUY, with higher MYR12.00 FV.

• Exceeding  expectations.  STMB  again  exceeded  our  and  consensus expectations,  with  its  9M13  profit  of  MYR98m  comprising  85%  of  our conservative FY13 forecast, and 81% of consensus’ estimates.
• Bancatakaful  business  to  moderate  ….  Growth  in  family  takaful contributions  moderated, but this was expected  due to the slowdown in its  bancatakaful  business,  which  is  subject  to  Bank  Negara  (BNM)’s tougher measures on personal financing and household debt.
• … but growth remains unimpeded due to prudent claims management and  controlled  expenses.  Underwriting  margins  improved  as  its  claims ratio  remained steady  at ~50%,  while  the  management expenses (ME) ratio was better at 20% YTD (3Q13: 16% vs 2Q13: 18%). This more than offset  the  weaker  family  takaful  topline  growth.  Meanwhile,  investment income  from the family and general takaful  segments remained stable yo-y.
• Upgrading FV to MYR12.00.  We adjust lower our ME ratio  on grounds that  management  has  been  working  on  moderating  its  operating expenses. Please see Figure 5 for  our assumptions.  This has lifted our FY13F/FY14F  EPS  by  10%/6%  and  our  FV  to  MYR12.00  (from MYR11.30),  pegged  to  an  unchanged  14x  FY14F  EPS.  Although  the share price  has chalked  up  an  impressive  86%  1-year  total  return,  we continue  to  see  value  in  this  stock.  Taking  into  account  its  earnings potential, STMB is still trading at inexpensive valuations vs its peers.
• Outlook  remains  rosy.  While  we  are  cautious  on  the  impact  arising from  BNM’s  proposal  for  the  sector  to  liberalize  operating  costs  on wakalah  income,  we are not concerned over STMB’s overall business. Leveraging  on  its  unique  15%  “No-Claim  Cash  Back”  proposition (applicable  to  a non-claim policy year), STMB  is  targeting  to increase its general  takaful  customer base by 20-30%  via its  promotion  campaigns. Its current customer base totals 1.2m.

Financial Exhibits

• We maintain our forecast assumptions of at least 15% takaful contributions growth vs management’s target of 20%-25%
•  Key insurance indicators are not comparable between the operator, general takaful and family takaful segments

SWOT Analysis

Company Profile
Takaful Malaysia provides syariah-compliant general and family insurance whereby the risk is voluntarily and collectively shared by a group of participants.

Recommendation Chart

Source: RHB