Friday 29 Mar 2024
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Syarikat Takaful Malaysia Bhd
(July 23, RM4.10)

Initiate coverage with an add call with a target price of RM4.39 per share. Syarikat Takuful Malaysia (STM) is the only listed purely takaful operator on Bursa Malaysia.

The company can be considered a composite insurer, as it is operating both family takaful (akin to life insurance) and general takaful (non-life insurance) businesses, from which it generated total contributions (premiums) of RM1.4 billion in financial year 2014 (FY14). It also has a small takaful unit in Indonesia.

We believe the outlook is positive for the takaful industry due to the switch from conventional insurance to takaful products among the Muslim community, and an increased  take-up rate for family takaful products. 

In 2015, we are projecting contribution growth of 10% to 11% for the general takaful sector, and 11% to 14% for the family takaful sector. We forecast a sterling three-year compounded annual growth rate (CAGR) of 15.6% for STM’s net profit in FY14 to FY17.

This is expected to be underpinned by a 11.5% CAGR in gross earned contributions, with a CAGR of 12% for the family takaful business and 10.3% for the general takaful business.

For the general takaful business, we anticipate an improvement in the gross claims ratio from 72.6% in FY14 to 65% in FY15 to FY16, and 64% in FY17.

We think that STM should trade at a premium valuation compared with its peers in Malaysia due to: i) its proposition as the only pure direct exposure to the takaful sector; ii) its position as a composite insurer; and iii) our projection of swift earnings per share growth and superior return of equity of 24% to 27%. — CIMB Research, July 23

Syarikat-Takaful_fd240715_theedgemarkets

This article first appeared in The Edge Financial Daily, on July 24, 2015.

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