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Tuesday, October 18, 2016

CIMB Research retains Add for Syarikat Takaful Malaysia

Tuesday, 18 October 2016 | MYT 9:07 AM
CIMB Research retains Add for Syarikat Takaful Malaysia

KUALA LUMPUR: CIMB Equities Research is still rating Syarikat Takaful Malaysia as an Add due to the the potential re-rating catalysts of exposure to the fast-expanding takaful market, bright earnings prospects, and high returns on equity (ROE) of 23%-25% in FY16-18F.

It said on Tuesday the downside risk for its target price of RM4.72 would be the drastic deceleration in the expansion of its contributions, caused by slower industry growth and/or increased competition

“At 71% of our full-year forecast, Syarikat Takaful Malaysia’s 9MFY16 net profit fell short of our expectations, due to higher-than-expected operating expenses. However, the 9M16 net earnings were above the market expectations at 77% of consensus,” it said.

Despite the adverse economic environment, Syarikat Takaful Malaysia still recorded a strong growth of 12.5% on-year in its 9M16 gross earned contributions or GEC (akin to premium for conventional insurers). The key driver was the family takaful unit, which recorded a commendable 16.1% on-year expansion in 9M16 GEC compared to a rise of only 4.9% on-year for the general takaful unit.

CIMB Research pointed out the group’s total operating expenses also rose by a wide margin of 18.9%
on-year in 9M16, primarily due to expenses to keep up with the topline growth. Notwithstanding this, net profit still expanded by a healthy 10.8% on-year in 9M16.

Due to its faster growth, the family takaful’s share of the company’s total GEC rose from 68.2% in 9M15 to 70.4% in 9M16. This was at the expense of the general takaful business, which saw its proportion decline from 31.8% in 9M15 to 29.6% in 9M16.

“We lower our projected FY16-18 EPS forecasts by 5%-6% due to the 5.6% increase in our projected operating expenses. Despite the EPS cut, our dividend discount model based target price (TP) rises from RM4.54 to RM4.72 due to the roll-over of our TP to end-2017,” it said.

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