• Maintain BUY and MYR4.40 TP, 14% upside and c.4% FY25F yield. Syarikat Takaful M’sia Keluarga’s 1H24 results met our and Street expectations. Key highlights include strong takaful revenue growth and stellar investment performance, though margins remain under pressure. Nevertheless, we continue to like STMB for its strong leadership position in the bright takaful space, while its current P/BV of 1.5x (-1SD from the mean) looks attractive against its high-teens/low-20% ROE.

• Group results review. 2Q24 net profit of MYR93.1m (+1% YoY, -9% QoQ) brought the 1H24 sum to MYR195.4m (+5% YoY) – this came in line with expectations, forming 48% and 50% of our and consensus full-year estimates. Takaful revenue surged 28% YoY in 1H24 thanks to stronger contributions from both the family and general takaful segments. Takaful service expenses, however, rose sharply by 41% on the back of higher claims incurred (+39%) and other directly attributable expenses (+44%). This led to underwriting margin erosion to 4% (1H23: 7%), but a strong performance on the investment front (+37% investment return, +32% net investment and finance result) ensured positive bottomline growth at half time.

• Family fund – underwriting losses narrowed. In 1H24, takaful service losses (before profit distribution to participants) for the family segment narrowed to MYR16.3m from MYR19.1m in 1H23, which likely reflects the strong revenue growth (+70% YoY) coupled with ongoing claims management initiatives. This was further helped by a 50% YoY increase in investment returns, which allowed the segment to generate a surplus of MYR160.0m in 1H24 (+56% YoY), by our estimates. The contractual service margin (CSM) balance, however, reduced 4% YoY due to a decline in new business CSM (-16%) and a larger CSM amortisation to the P&L (+3%). We are not overly concerned, as we continue to expect decent, albeit decelerating, household loans growth in 2H24 – STMB’s bancassurance partners contributes two- thirds of the segment’s sales.

• General fund – revenue momentum continues. The general segment’s takaful service revenue surged 20% YoY in 1H24, driven by stronger sales in motor and fire takaful products. While retakaful expenses declined 78% YoY from a high base (1H23 retakaful expenses was elevated due to flood-related claims from retakaful operators), claims incurred rose 46% YoY. Hence, by our estimates, the segment’s deficit widened to MYR28.5m, from MYR24.9m in 1H23.

• No changes to earnings estimates, though we think there could be some upside risk, as STMB’s investment returns – particularly marked-to-market gains – should benefit from potential interest rate cuts in the US. Our TP is maintained at MYR4.40, and includes a 0% ESG premium/discount.

Source: RHB Research - 2 Sep 2024