• BUY, new TP of MYR4 from MYR4.40, 19% upside with c.5% FY22F yield. Syarikat Takaful Malaysia Keluarga’s 1H22 results are in line, despite higher fair value losses on its investments. Still, topline contributions from its family and general takaful segments remain robust, and this has further strengthened the company’s operating fundamentals. Its share price has fallen by >20% in the past year. As the stock’s market valuation is at 1.4x FY22F P/BV (below 1.5SD from the 5-year mean), we believe most of the concerns over the impending MFRS 17 adoption have been priced in.

• 1H22 results within expectations. In 1H22, STMB recorded a net profit of MYR156.4m, which makes up 48% of both our and Street full-year estimates. Gross earned contributions (GEC) for 1H grew by 13.6% YoY, while the main drag on total numbers stemmed from weakness in the equity markets, which affected mark-to-market (MTM) items. Given the expectation of a mild rebound in the equity and fixed income markets in 2H22, we deem the overall results to be in line with our expectations.

• Family takaful results. 1H22 GEC rose 12.2% YoY on robust sales of credit-related products. However, the stellar turnover was greatly offset by the increase in fair value losses to MYR68.5m, from MYR3.8m in 1H21. For 2Q22, this segment recorded a 14% YoY growth in GEC (QoQ: -5%), driven mainly by strong sales of mortgage and credit-related products. As a result of an increase in death claims, the segment’s claims ratio rose to 46.3% from 42.7% in 2Q21 (1Q22: 60.8%).

• General takaful results. 1H22 GEC gained 16.8% YoY on the back of higher motor, fire and liability insurance sales. Despite this, a higher wakalah fee expense by 22.8% YoY led to a deficit for the segment. 2Q22 GEC grew 18% YoY (QoQ: -8%), on the stronger fire and motor insurance business. Higher claims from motor insurance customers resulted in a claims ratio of 54.9% (2Q21: 46.7%, 1Q22: 40.8%).

• Outlook. 1H22 GEC growth surpassed management’s previous guidance of high-single-digit growth rates for both the family and general takaful segments. The expansion into the retail and regular contribution markets will still be a key focus area, as STMB strives to add on to its already-solid single-contribution offerings. Concerns on MFRS 17 adoption have been largely priced in – which explains the weakness in its share price in the past year. That said, its strong fundamentals should bode well for the company as we edge closer to the MFRS 17 adoption date of 1 Jan 2023.

• We tweak FY22-24 forecasts slightly as we factor in the latest financials. We have not imputed MFRS 17-related revisions into our overall projections at this juncture, but management has guided for a 15-20% downward adjustment on FY23F net profit. Our GGM-derived TP drops to MYR4 (from MYR4.40) after updating our model inputs to better reflect the current market conditions. We value the stock at 1.6x FY22F P/BV, ie below -1SD from the 5-year mean – which makes this counter an attractive BUY.

Source: RHB Research - 5 Aug 2022