SYARIKAT TAKAFUL MALAYSIA BHD

By Kenanga Research Rating: Outperform Target Price: RM4.27

GROWING demand for takaful products, low penetration rates as well as government initiatives augur well for Syarikat Takaful Malaysia Bhd’s (STMB) earnings prospect.

According to Kenanga Research, STMB’s unique proposition as the only operator with 15% no-claim rebate should continue to attract the right customers with good claim experience. In addition, the brokerage notes that STMB has consistently delivered high return on equity (ROE), for instance at 24% in 2016, and offered decent dividend yield of 4%.

Kenanga Research initiated coverage on the company with an “outperform” call and target price of RM4.27. The brokerage valued STMB at its blended 2018 estimated price-earnings ratio (PER)/price-to-book-value ratio of 16.4 times/3.9 times (based on its average three-year PER and PBV), citing STMB’s consistent double-digit ROE low-claims ratio as well as decent dividend yield.

“STMB is the only pure takaful operator listed in Bursa Malaysia. Note that the growth for the Malaysian Takaful industry has been riding on the growth of the Islamic banking and finance sector; which have seen the industry’s assets growing at a five-year compounded annual growth rate (CAGR) of 10%, parallel with the Islamic banking system assets’ five-year CAGR of 12%,” Kenanga Research said.

“With BIMB Holdings Bhd being its major shareholder (at 59.9%), STMB is well-poised to ride on its growth, which also offers a wide and trusted distribution base,” it added.

Kenanga Research said there was strong growth prospect for the takaful industry, given its low penetration rate of 54%. With growing consumer awareness amid rising medical costs and living expenses, it expected tremendous potential in the takaful business which will continue to support STMB’s earnings.

In addition, STMB is poised to benefit from the government’s initiatives such as the Life Insurance and Family Takaful Framework and the phased liberalisation of general insurance to improve intake of insurance and takaful products and services with the aim to achieve 75% penetration rate by 2020 under the Economic Transformation Programme.