Revenue increased to RM485.3mil from RM462mil previously
KUALA LUMPUR: CIMB Equities Research is maintaining its Add recommendation for Syarikat Takaful Malaysia (STM) due to the positive growth prospects in the takaful market.
It said on Thursday it was positive on STM’s move to embark on technology to market its products online, which will lead to wider market reach and cost efficiency.
“We retain our FY17-19F earnings per share (EPS) forecasts and dividend discount model-based target price of RM4.52. Also intact is our Add call, predicated on the positive prospects for the takaful market and strong return on equity (ROE) of more than 20%.
“The downside risks to our call are a drastic slowdown in premium growth due to weaker expansion in the industry and increased competition,” it said.
CIMB Research said STM held an analyst briefing on Wednesday which was hosted by group managing director Datuk Seri Mohamed Hassan Kamil.
The key highlights of the briefing were the regulatory changes in the industry and STM’s digital initiatives.
There are three new regulatory changes in the takaful market including the requirement for takaful operators to split their businesses into two entities (for general and family takaful). This would be negative for STM as it would lead to higher operating costs.
“For this, we have factored in additional costs of RM8mil in FY17F and RM5m in FY18-19F, in accordance with management’s guidance.
“Bank Negara plans to implement the detariffication by Jul 17, starting with the motor insurance (MI) (including takaful) segment. This would lead to greater price competition, but the MI rate may not necessarily drop given the thin margins for these products.
“However, there is a risk of a decline in fire insurance (FI) rates following the detariffication given the much better margins for FI products. Comparatively, the claims ratios for FI are about 40-50%, considerably lower than the 60-70% for MI,” it said.
CIMB Research noted that despite being perceived as a traditional takaful operator, STM is serious in growing its digital takaful business, management said.
It started to market motor takaful products over the Internet in November 2016 and will roll out more products online, including personal accident takaful and travel takaful in 2017-18.
“We are positive on these initiatives as they will expand STM’s market reach and lower its operating costs.
“STM had a solid total surplus of RM977.3mil as at end-Dec 16 for its takaful funds – RM742.8mil for family takaful and RM234.5mil for general takaful.
“This would help to support the future growth of its businesses and enable STM to continue to pay out the 15% no-claim cash rebate to its general takaful policyholders,” it said.
Win a prize this Mother's Day by subscribing to our annual plan now! T&C applies.
