25 January 2017 4QFY16 Results Review Syarikat Takaful Malaysia Berhad Ending on a high note Maintain BUY Unchanged Target Price (TP): RM4.84 INVESTMENT HIGHLIGHTS Syarikat Takaful Malaysia Bhd (STMB) s FY16 PAZTAMI of RM176.3m (+13%yoy) were within our expectations The growth in 4QFY16 earnings was backed by strong sales from both Family Takaful and General Takaful business Premised on above, we make no changes to our existing forecast numbers Hence we reiterate our BUY recommendation with an unchanged TP of RM4.84 per share FY16 PAZTAMI met expectations. STMB has continued to deliver solid PAZTAMI performance in FY16, where it grew +13%yoy to RM176.3m despite of challenging of macroeconomic conditions. The increase was as a result of higher Wakalah fee income of RM558.9m (+33.3%yoy) to the Group. Overall, the reported earnings came in line with ours and street expectations. Sturdy 4QFY16 earnings growth in tandem with higher sales. For 4QFY16, STMB s PAZTAMI of RM39.3m was a sturdily +8%yoy growth, thanks to higher earned contributions from Family Takaful mortgage related products and General Takaful fire and commercial classes. However, it could have fared even better if it was not due to realised losses mainly from investment in equity, although this was partially offset by gains from investment in Sukuk. Impact on earnings. As FY16 results fell within our expectation, we maintain our existing forecast numbers with an expectation of double digit earnings growth of 11% this year. This will be driven by pick-up in Takaful s sector penetration rate on the back of continued growth of domestic Islamic finance industry. Pursuant to that, the Group is expected to continue focusing on employees benefit and bancatakaful businesses specifically on personal financing and mortgage reducing term takaful. We also expect its digitalisation initiatives will enhance its distribution channel that may translate into stronger sales. Recommendation. Accordingly, we reiterate our BUY recommendation with an unchanged TP of RM4.84 per share. Our valuation is derived based on sum-of-parts, which is in line with its 3-year historical FY17 PER of 20x and this implies PBV of 5.4x. RETURN STATS Price (24 Jan 2017) Target Price Expected Share Price Return RM4.05 RM4.84 +19.5% Expected Dividend Yield +3.0% Expected Total Return +22.5% STOCK INFO KLCI 1,680.69 Bursa / Bloomberg Board / Sector Syariah Compliant 6139 / STMB MK Main / Finance Yes Issued shares (mil) 820.9 Par Value (RM) 0.20 Market cap. (RM m) 3,324.8 Price over NA 4.54x 52-wk price Range RM3.76 RM4.44 Beta (against KLCI) 0.58x 3-mth Avg Daily Vol 0.36m 3-mth Avg Daily Value Major Shareholders (%) RM1.49m BIMB Holdings 59.88 EPF 11.64 MIDF RESEARCH is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures
INVESTMENT STATISTICS FYE Dec FY14 FY15 FY16 FY17F Operating revenue (RM'm) 1,652.6 1,788.6 2,013.3 2,020.9 Net earned contributions (RM'm) 1,169.6 1,256.4 1,486.3 1,783.7 Pre-tax and zakat profit (RM'm) 186.7 204.2 221.0 288.9 PAZTAMI (RM'm) 140.5 156.0 176.3 194.7 Diluted EPS (sen) 17.2 19.0 21.4 23.7 EPS growth (%) 2.5 10.8 12.7 10.8 PER (x) 13.2 20.5 18.9 17.1 Net Dividend (sen) 15.0 7.4 12.0 12.0 Net Dividend Yield (%) 6.6 1.9 3.0 3.0 Book Value (sen) 0.71 0.84 0.89 0.89 PBV (x) 5.7 4.8 4.3 4.6 ROE (%) 24.1 22.6 24.2 26.7 ROA (%) 2.0 2.1 2.3 2.4 Source: Company, MIDFR FY17 SUM-OF-PARTS VALUATION Segment Basis Indicative value (RM'm) Per share (RM) Investment income on Takaful float* Discounted gain on perpetuity growth 786.3 0.96 Add: Shareholder funds Group level 778.7 0.95 Takaful Value 1,565.0 1.91 Add: Underwriting profit Peg to PER of 7.8x (2-STD below 3-year mean PER) 2,407.4 2.94 Target Price 4.84 Diluted shares outstanding (million) 820.0 * FY17F float comprises of accumulated surplus, unearned contribution and net outstanding claims Source: MIDFR DAILY PRICE CHART Hafiz Hassan mohd.hafiz@midf.com.my 03-2772 1668 Source: Bloomberg, MIDFR 2
4QFY16 RESULTS SUMMARY FYE Dec (RM'm) Quarterly Results Cumulative 4Q16 YoY QoQ 12M16 YoY Gross earned contributions 447.4 18% 6% 1,728.5 14% Net earned contributions 382.7 20% 5% 1,486.3 18% Administration income 20.5 >100% 91% 56.6 41% Investment income 72.7 5% -3% 280.7 5% Remarks Higher sales generated by both Family Takaful and General Takaful business Realised gains and (losses) -21.9 >-100% >-100% -3.0 >-100% Dragged by losses in Fair value gains and (losses) 0.2-99% -95% 15.8 >-100% equity Other operating income 4.4 >100% 75% 6.5-54% Other income 75.9-25% -31% 356.5 6% Gross benefits and claims paid -283.2 28% -2% -1,127.5 24% Claims ceded to retakaful 66.0 76% 15% 244.8 57% Gross change to contract liabilities 64.0 48% >100% 159.5 >100% Change to contract liabilities ceded -31.5 >100% >100% -143.0 >100% Net benefits and claims -184.6 22% -18% -866.3 26% Management expenses -82.9 34% 17% -284.6 28% Commission expenses -31.4 10% 33% -139.0 6% Expense reserve -8.3 >100% >-100% -16.7 >-100% Other opex -16.8-68% 11% -50.0-42% Other expenses -139.4-4% 35% -490.3 11% Profit before tax and zakat 40.9-46% -36% 221.0 8% Taxation -2.3-67% -88% -46.2 14% Zakat 0.3 >100% >-100% -0.3-20% PAZTAMI 39.3 8% -12% 176.3 13% Diluted EPS (sen) 4.8 7% -13% 21.4 13% In tandem with higher top line Higher net wakalah fee income Key metrics 4Q16 +/- ppts +/- ppts 12M16 +/- ppts Claims ratio 48.3% 0.8-13.4 58.3% 3.8 Management expenses ratio 21.7% 2.4 2.2 19.2% 1.4 Commission expenses ratio 2.9% -3.1-0.7 5.5% -1.7 Combined ratio 72.8% 0.1-12.0 83.0% 3.4 Underwriting margin 27.2% -0.1 12.0 17.0% -3.4 Source: Company, MIDFR 3
MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. SELL TRADING SELL Total return is expected to be <-15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 4
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