KUALA LUMPUR (Nov 19): Affin Hwang Investment Bank has maintained its “Buy” call on Syarikat Takaful Malaysia Keluarga Bhd (STMK) at RM6.17 with a lower target price of RM7.80 (previously RM8.40) and said the group will stay resilient, underpinned by its competitive edge as the preferred Takaful partner, its lower-than-industry claims ratio, the shift towards Islamic banking and successful online market penetration.

In a note today, the research house said it expects the overall insurance and Takaful industry to see a weaker outlook in 2020-2021, largely driven by a potential moderation in economic growth.

“Likewise, we expect more modest earnings growth rates of 4.3% and 7.5% y-o-y for STMK in 2020-21E (from our previous forecast of 10-15%),” it added.

Affin Hwang stated Malaysia’s general Takaful industry saw a robust 16.4% year-on-year (y-o-y) growth rate in gross earned contributions for 1H19, while the Family Takaful industry grew at 29.6% y-o-y (based on new business contributions).

According to the research house, STMK is expecting a more normalised gross earned contribution (GEC) growth in 4Q19 as there are no new banca partners signed up year-to-date (YTD) 2019.

It noted the upbeat earnings in 3Q19 may likely moderate in 4Q19 as mortgage drawdowns by LPPSA (civil servants’ mortgage provider) are usually slower in the fourth quarter and the four preferred banca partners have met their KPIs on credit Takaful sales in 2019.

“[And] We expect a slowdown in passenger car sales,” Affin Hwang added noting that the factors stated are an indication of a sharp slowdown for the insurance company’s earnings outlook.

It believes that STMK, which adopts prudent underwriting policies, gives investors some comfort given management’s good execution in the Takaful business.

“We believe that STMK will stay resilient, underpinned by the group’s competitive edge as the preferred Takaful partner, its lower-than-industry claims ratio, the shift towards Islamic banking and successful online market penetration.”

At 9.24am, STMK gained 0.32% or 2 sen to RM6.19, valuing it at RM5.12 billion.