• Maintain BUY and MYR4.40 TP (14% upside), c.4% yield. Syarikat Takaful Malaysia Keluarga’s 1Q24 results came in line with our and consensus’ full- year estimates. Key results highlights include continued takaful revenue strength and solid investment returns. We continue to like STMB for its leadership position in the bright takaful space, while its resilient investment portfolio provides some defence against any moderation in revenue growth.

• Results review. 1Q24 net profit of MYR102.3m (+9% YoY, +45% QoQ) was in line with our and consensus’ full-year estimates. YoY, takaful revenue surged 40% thanks to stronger contribution from both the family (+94%) and general (+20%) funds. Claims were up a smaller 18%, though higher wakalah fees (tripled) and net re-takaful expenses led to a 2bps underwriting margin compression. This was offset by strong performance on the investment front, with investment income (net of takaful finance expenses) up 22% YoY. QoQ, takaful service results improved 82% on the back of lower acquisition costs (- 43%) and net re-takaful expenses (-74%). All in, 1Q24 ROE stood at 23.6% (1Q23: 26.0%, 4Q23: 16.6%).

• Strong topline growth from the family fund. The fund’s takaful revenue almost doubled YoY (QoQ: +6%) likely due to strong growth in mortgage- and personal finance-related takaful products, combined with ongoing repricing initiatives. We also gather that core takaful service results were up by MYR7.8m YoY (QoQ: -MYR23.6m), while investment income net of takaful finance expenses was up 34% YoY (QoQ: +48%) from stronger net profit income on fixed income investments.

• General fund seeing a moderation in sales? While the fund’s takaful revenue grew 20% YoY, QoQ growth was more muted at +1%. Moving forward, we think revenue growth could slow down, as new car sales are expected to experience some moderation from a high base in 2023. Elsewhere, core investment income was up 8% QoQ (YoY: +17%), but this was offset by higher takaful finance expenses (+46% QoQ, +32% YoY) due to a greater unwinding effect from higher takaful contract liabilities.

• Forecasts unchanged as results were in line. Our TP is maintained at MYR4.40 and includes a 0% ESG premium/discount, in line with our proprietary ESG scoring methodology.

• Key downside risks include a slowdown in takaful sales, higher-than- expected claims, and weaker-than-expected investment income.

Source: RHB Research - 29 May 2024