• Keep BUY, new TP of MYR4.40 from MYR4.90, 25% upside with c.4% FY22F yield. 1Q22 results are in line. Management expects modest growth from both family and general takaful, supported by the recent expansion of its agent network, and plans to take market share from the conventional insurance space. The weak share price performance, in our view, reflects concerns on the Day 1 impact from Malaysian Financial Reporting Standard 17 implementation and a lack of near-term catalysts.

• Within expectations. Syarikat Takaful Malaysia Keluarga recorded a 1Q22 PATAMI of MYR86.8m (-44% QoQ, -14% YoY), at 27% and 24% of our and Street full-year estimates. The YoY/QoQ decrease was mainly from a higher effective tax rate or ETR, ie recognition of Cukai Makmur and tax relating to wakalah fee income from family takaful, as well as lower net investment gains. Despite that, 1Q22 saw higher wakalah fee income (+16% QoQ and YoY), contributed by both its general and family takaful businesses, and coupled with a lower management expense ratio of 41% (4Q21: 51.8%, 1Q21: 41.5%).

• General takaful business. 1Q22 gross earnings contributions (GEC) rose 15.8% YoY or 3% QoQ. In particular, fire takaful grew the fastest (+17% YoY), supported by backlogs from bancatakaful channels – which is expected to normalise in the subsequent quarters. Its agent channel now contributes a larger 44% to general takaful topline following the expansion of its sales team. Claims ratio were flattish QoQ, at 40.8%, while the wakalah expense ratio rose to 80%.

• Family takaful business. 1Q22 GEC grew 10.5% YoY (-3% QoQ). There were unrealised fair value losses stemming from investment in equities and bonds, which dragged 1Q22 net investment results (-58% QoQ, -44% YoY). Its claims ratio spiked up to c.61%, due to late submissions for death claims (likely to be pandemic-related). Coupled with a higher wakalah expense ratio of 40.6%, this led to a 101.3% combined ratio.

• Outlook. Management remains cautiously optimistic on achieving high single-digit GEC growth for both segments, supported by the recent agent network expansion, and plans to take market share from the conventional insurance space. Nevertheless, an increase in the Overnight Policy Rate would be negative for STMB, as it would trigger a further recognition of unrealised fair value losses (partly offset by higher investment gains), while demand for credit-related products could dampen.

• FY22-24F earnings lifted by 4% upon reflecting its latest financials while we make no changes to our key assumptions. Our TP drops to MYR4.40, as we updated our valuation inputs, which reflects an unchanged 2% ESG premium. We value the stock at 1.77x FY22F P/BV against an average FY22-24F ROE of 17.2%.

Source: RHB Research - 12 May 2022