This article first appeared in The Edge Financial Daily on March 22, 2019
Syarikat Takaful Malaysia Keluarga Bhd
(March 21, RM4.65)
Buy with a target price (TP) of RM8.30: The investment thesis on Syarikat Takaful Malaysia Keluarga Bhd (STMK) is based on its potential to deliver return on equity (ROE) of about 33-35% in financial years 2019 to 2021 estimate (2019E-21E), which is being driven by new growth strategies such as expansion of high-margin products such as credit-related Takaful cover (for bank customers) while leveraging on the digital channels and affiliated partners for distribution (which helps in lowering agents’ fees). Part of these initiatives are already reflected in its fourth quarter of financial year 2018 (4QFY18) earnings where net profit jumped 61.9% year-on-year (y-o-y). We are projecting a net profit growth of 23.7%, 25.9% and 17% for 2019E, 2020E and 2021E respectively. Dividends also look attractive, yielding 4.4-6.5%.
STMK operates through its Family Takaful and General Takaful units, which distribute mostly high-margin single contribution (or premium) products. The Family claims ratio of 52.9% (below some key Takaful players), has been on a downtrend, hence mitigating the impact from rising claims at the General unit (in-line with industry). Potential upside lies in a decline in management expenses, as expansion is geared towards its digital platform and bancatakaful partners.
STMK saw both its Family Takaful (2018 net earned contribution 25.6% y-o-y) and General Takaful (+35.3% y-o-y) outperforming Takaful industry growth rate of 15.2% and 17% yearly respectively for 2018. We believe STMK has been on an aggressive market expansion drive.
Our investment thesis on STMK lies on its potential to deliver ROEs of about 32-33% over 2019E-21E, which will be driven by new growth strategies such as an expansion of high-margin products — redit-related Takaful cover (for banks’ customers) while leveraging on the digital channels and affiliated partners for distribution (which helps in lowering fees).
We project net profit growth of 23.7%, 25.9% and 17% for 2019E, 2020E and 2021E respectively, which translates into a three-year profit compound annual growth rate (CAGR) of 22.2%. STMK’s dividend yield angle is also looking attractive based on our assumption of a payout ratio of 45% for 2019E-21E, which translates into a yield of 4.4-6.5%.
Based on STMK’s track record, its Patami grew at a CAGR of nearly 20% from 2012 to 2018, while ROE has increased steadily from 21% in 2012 to 32.7% in 2018. — Affin Hwang Capital, March 21