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Thursday, April 27, 2017

Brokers Report: Syarikat Takaful - Operating Efficiency To Drive Growth



Reaffirm BUY with an unchanged target price (TP) of RM4.84



INVESTMENT HIGHLIGHTS

  • Syarikat Takaful Malaysia Bhd (STMB)’s 1QFY17 PAZTAMI of RM56.8m (+23%yoy) was within ours and consensus expectations
  • Family Takaful continued to support the growth in 1QFY17 earnings
  • As the result is within our estimates, we make no changes to our existing forecast numbers
  • Hence we reiterate our BUY recommendation with an unchanged TP of RM4.84 per share

1QFY17 PAZTAMI met expectations. Despite challenging macroeconomic condition, STMB has continued to deliver solid PAZTAMI performance in 1QFY17, where it grew +23.0%yoy to RM56.8m. The increase was as a result of higher Wakalah fee income of RM186.3m (+13.0%yoy) to the Group and its portfolio rebalancing strategy to reduce exposure in risky assets. Overall, the reported earnings came in line with ours (at 29.1%) and consensus’ (at 29.5%) expectations.

Strong 1QFY17 earnings growth in tandem with higher sales. The growth in PAZTAMI was due to higher earned contributions from medical, personal financing and mortgage insurance product in the family segment.

Riding on the growth of Islamic banking and finance sector. Syarikat Takaful continued to benefit from the development of Islamic banking and finance sectors which offer a wide and trusted distribution base. The company continued to extend its footing in a various market segments by adopting “bancatakaful” as an alternative to insurance agents.

Enhanced distribution channels to spur further growth. According to management, the company is undertaking significant effort to increase its operating capacity in order to fulfil the needs of growing demand for takaful products via its digitization plan. The management is very optimistic with this strategy as they believe that technology will become the transformation agent and competitive advantage in providing enhanced customer experience and innovative product offerings. We positive on this development as we believe that this is the viable method to expand its presence in the market.

Introduction of online product distribution channel in 2017. In light of the company’s digitisation initiatives, ebusiness platform will be introduced to the market this year as a new catalyst to drive business growth. The ”Click to Cover” platform will ease accessibility of Syarikat Takaful’s product offerings. We opine that the implementation of this strategy will open up more opportunities for business growth by tapping new market which comprises of more digitally savvy consumers.
As such, we are comforted by the strategy undertaken by the management to strengthen its presence in the market as number one Takaful provider. Against the backdrop of expected motor de-tarriffication implementation in July 2017, we view the digitization plan the company has embarked as timely.

Impact on earnings. We maintain our earnings estimate for this year as the results fell within our expectation, with forecasted 11.0% growth in earnings. Against the backdrop of improved macro-economic performance, we opine that Syarikat Takaful is poised to benefit from the strong growth trajectory of Islamic finance industry. Pursuant to that, we are fairly comforted by the management’s strategy to embark on digitisation initiatives which will strengthen and enhance its distribution channel. We see this as a significant strategical move by the company to further strengthen its positioning in the takaful industry that will translate to stronger sale numbers.

Recommendation. Accordingly, we reiterate our BUY recommendation with an unchanged TP of RM4.84 per share. Our valuation is derived based on sum-of-parts, which is in line with its 3-year historical FY17 PER of 20x and this implies PBV of 5.4x.


Source: MIDF Research - 27 April 2017

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