Syarikat Takaful’s 1H14 net profit of MYR78m is in line, comprising 49% of our forecast. Overall cost efficiencies, stable investment  results and a controlled claims experience had offset moderated growth in topline, demonstrating  that  the  company  is  able  to  weather  through  a challenging  retail  environment.  We  retain  our  forecasts.  Maintain  BUY and FV at MYR15.00 (13x FY15F P/E) as we still see long-term catalysts.  
 
1H14 review. Syarikat Takaful Malaysia (Syarikat Takaful)’s 1H14 core net profit of MYR78m (+18% y-o-y) is in line with our forecast, despite a reduction  in  sales  (-13%  y-o-y  in  gross  contributions).  The  key takeaways are the stable investment results and an improved combined (loss  +  claims) ratio, demonstrating management’s continuous ability to manage  cost  efficiencies.  Underwriting  margins  improved  across  both family  takaful  (FT)  and  general  takaful  (GT),  partially  helped  by  lower claims  (especially  in  GT),  a  release  of  expense  reserve  from  expiry  of renewal policies and a lower base of earned contributions.

GT  vs FT.  The  GT  business  registered  a  reduced  claims ratio  to  37%, from  49%  a  year  earlier.  This  had  boosted  the  surplus  transfers  and wakalah income contributed by the GT fund to the operator level. The FT business  charted  lower  sales  (-16%  y-o-y), in  particular  from  the  group FT products, and saw wakalah income contribution and surplus transfer decrease.  In  this  quarter,  we  think  that  the  GT  business  is  still  facing intense competition amongst general insurers, despite the group’s value proposition  of  its  15%  Cash  Back  (and  additional  5%  for  non-motor products).  FT, which was the company’s past  main  revenue  driver,  is facing a challenging retail environment. Nevertheless, FT’s gross earned contributions recovered sharply by 35% q-o-q from a slump in 1Q. 

Sufficient  capital  adequacy.  The  group  reported  its  capitalisation adequacy, which is well above the minimum 130% capital buffer, on top of its total capital available of MYR997m as at June 2014, following the provisions  of  the  Risk-Based  Capital  Framework  (RBCT)  for  takaful operators.  We  expect  a  better  2H,  as  we  believe  the  company  can compete  more  effectively  with  its  value  proposition  and  ample capitalisation strength.   

Maintain BUY with MYR15.00 FV. This is pegged to an unchanged 13x FY15F P/E. While our FV implies a 3.4x FY15F P/BV, we deem this fair, given its superior ROEs vs peers. We maintain  our  forecasts given that there  were  no  surprises,  but  expect  the  company  to  declare  a  final dividend instead of several interim dividends.  

Catalysts and risks. Regulations that favour standalone takaful players and  its  ability  to  capture  market  share  in  the  conventional  insurance space  are  key  long-term  catalysts.  Competition, claims exposure and a potential split of its GT and FT entities are a few of the risks. 

Financial Exhibits

 We maintain our forecast assumptions of at least 15% takaful contribution growth, in line with management’s target growth

 Key insurance indicators are not comparable 
among the operator, GT and FT segments

Financial Exhibits

SWOT Analysis

Company Profile

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

Recommendation Chart

Source: RHB