• Keep BUY and MYR4.00 TP, 15% upside and 5% yield. Syarikat Takaful Malaysia Keluarga’s 4Q22 net profit of MYR75m (-52% YoY, -14% QoQ) brought full-year earnings to MYR319m (-23% YoY), matching our and consensus estimates. Though claims are expected to remain elevated, strong momentum in the topline along with a bashed-down valuation give us reasons to be upbeat on the counter.

• FY22 within expectations. FY22 net earnings of MYR319m (-23% YoY) met our and Street forecasts. The YoY decline was mainly attributable to a higher effective tax rate due to the imposition of Cukai Makmur and new taxes on wakalah-related income – PBT of MYR500m was a 14% YoY increase. Group gross earned contributions (GEC) grew 16% YoY on double-digit growth from both family and general businesses, though this was mitigated by higher claims (+24% YoY), as expected.

• Family takaful results. STMB’s family business recorded its highest ever GEC since listing of MYR2bn (+15% YoY) on the back of stronger mortgage and personal financing takaful sales. In line with industry trends, net claims surged 23% YoY, but were partly cushioned by greater investment income (+9% YoY). Overall, the combined ratio rose to 7ppts YoY to 84.9%, bringing segment surplus of MYR564m (-21% YoY).

• General takaful results. Segmental GEC grew a strong 17% YoY to MYR1bn in FY22, driven by greater fire and motor sales. Net claims rose 29% YoY post-reopening of the full economy – the claims ratio gained 8ppts to 51.4% as a result. The combined ratio for the full year stood at 107.7% (FY21: 93.0%, takaful industry FY22: 102.4%), leading to a segmental deficit of MYR7m (FY21: surplus of MYR60m).

• Outlook. Management expects claims to remain elevated as the economy readjusts to a post-pandemic world. Regardless, STMB will continue to leverage on its numerous bancatakaful partners to drive sales of credit- related family takaful products, which are high margin in nature. Overall, we expect the group to record mid- to high-single digit GEC growth in FY23F on the back of its record-breaking topline performance in FY22, while recovering investment income and moderating marked-to-market losses should reduce the negative bottomline impact from the elevated claims environment.

• We lower our FY23F-24F by 9-10% to factor in higher claims, and introduce FY25F in this report. After rolling forward our base year to FY23F, our TP is maintained at MYR4.00, and includes an ESG premium of 2% as per our in-house proprietary methodology. We continue to like STMB for its strong GEC growth and position as the only listed pure takaful player in the market. Its valuation also appears undemanding, as it is currently trading at c.1.3x P/BV, well below -1SD from its 5-year mean.

Source: RHB Research - 27 Feb 2023