KUALA LUMPUR (May 26): Syarikat Takaful Malaysia Bhd was among the top 10 gainers this afternoon as it rose 7.12% after announcing an earnings increase yesterday, which got analysts upbeat on the group's long-term growth prospects.

At 3.59pm, the stock was trading 22 sen higher at RM3.31 with 1.96 million shares done.

UOB Kay Hian said in a note today that as Takaful’s first quarter ended March 31, 2015 (1QFY15) recorded lower than expected operating cost, it has raised Takaful's FY15 and FY16 earnings by 6.8% and 5.2%, respectively.

Takaful's 1QFY15 saw a net profit of RM46.22 million, up 31.8% from RM35.07 million a year earlier. Revenue stood at RM562.46 million, up 30.2% from RM432.02 million last year.

The increase in earnings was mainly attributed to higher sales generated by Family Takaful and General Takaful business, and higher net investment income.

While it was upbeat on Takaful’s prospects, UOB has, however, downgraded the stock to a “hold” call with a target price of RM2.75.

“While we are upbeat on Takaful’s earnings recovery in 2015, coupled with long-term growth prospects, we downgrade our recommendation on the stock to hold after the share price has rallied by 52% since our initiation in December 2014.

“In spite of our downgrade, we raise our blended price earnings ratio and price to book derived target price from RM2.55 to RM2.75 post earnings revision,” it said.

The research house added that its target price implies a 3.15 times 2015 price to book forecast, which is deemed as fair given the group’s return on equity (ROE) and room for potential ROE enhancements via further ramp-up in dividend payouts.

UOB also raised its dividend assumption on the stock to 65% from its previous 55% net dividend payout ratio.

According to TheEdge Research, Takaful (fundamental: 0.95; valuation: 1.50) is currently trading at a price earnings ratio of 17.92 times.

Having a fundamental score of 0.95, Takaful’s fundamentals are deemed weak as the score measures the company’s profitability and balance sheet strength are derived from historical numbers. As at March 31, 2015, the group had a cash and cash equivalents of RM678.64 million.

With a valuation of 1.50, the stock is deemed fairly attractive in terms of valuations. Additionally, Takaful's share price is regarded as fairly stable by The Edge Research.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)