Keep BUY with MYR8.00 TP, 19% upside plus 3% yield. Syarikat Takaful (STMB) remains one of our top picks in the sector. As flagged in our previous note, 2Q19 results were solid across the board with the Family segment remaining the bright spot. We see recent share price weakness due to profit taking as unjustified, and an opportunity to accumulate. Our GGM-derived TP is based on c.4.8x FY20F P/BV.
Robust performance for a seasonally weaker quarter. STMB recorded another solid set of results with 24%/61% YoY growth in topline and bottomline. Given that 2Q and 3Q are generally the weaker quarters for STMB, we are unperturbed by the sequential moderation in 2Q19 growth (-16% QoQ).
Group gross earned contribution (GEC) grew c.24% YoY to c.MYR631m, largely driven by strength in the Family segment, resulting in YTD GEC growth of c.32% YoY. Claim ratio improved further by 1.3ppts QoQ to c.41% while management expense (ME) ratio remained steady at 6.9%. As a result, net profit surged 61% YoY to c.MYR81m. YTD GEC and net profit accounted for 50%/47% of our forecasts (vs YTD18: 44%/41%) and 49%/48% of Street’s.
Looking at the Operator’s income statement, net profit soared 58% YoY, underpinned by c.29% YoY growth in wakalah fee income and c.147% jump in Family takaful surplus transfer.
Family segment remains the bright spot. 2Q19 GEC grew c.33% YoY to MYR465m, mainly attributable to higher sales in credit-related products. Claim ratio improved c.2ppts QoQ to c.41% but was partially offset by a mild decline in wakalah fee rate of c.-4ppts QoQ (2Q19: c.34%). Nevertheless, Family’s bottom line (surplus attributable to takaful operator/participants) still saw a respectable 156% YoY increase
General bottomline a positive surprise. Segmental GEC grew c.4% YoY, which was slightly weaker than expected, but not entirely surprising. Claim ratio saw some deterioration (+226ppts QoQ) but still within the comfortable range. Wakalah fee rate was cut by c.14ppts QoQ – a move to rebuild General’s surplus balance in our view – which helped General to record a c.MYR12m surplus, a turnaround from 2Q18’s c.MYR8m deficit. Moreover, underwriting profit also returned to the black (c.MYR4m).
No change to forecasts. We made no changes to our earnings forecasts and reiterate our BUY call on STMB with an unchanged DDM-derived TP of MYR8.00.
Source: RHB
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