This article first appeared in The Edge Financial Daily on July 24, 2017 - July 30, 2017

Syarikat Takaful Malaysia Bhd 
(July 21, RM4.05)
Maintain buy call with an unchanged target price (TP) of RM4.90: Syarikat Takaful Malaysia Bhd six-month of financial year 2017 result came in within our and consensus expectations of 51.9% and 52.1% in respect of full-year estimates. 

The cumulative earnings were up by 10% year-on-year (y-o-y) to RM101.2 million. However, the second quarter of financial year 2017’s (2QFY17) were down by 2% y-o-y to RM44.4 million, coming from higher taxation. 

The group achieved higher 2QFY17 profits before zakat and tax of RM59.1 million, up 2% y-o-y, in comparison with RM58.1 million for the same period last year. This positive variance is attributable to higher net Wakalah fee income. 

The group saw a climb in its revenue due to increase in sales for the family takaful and general takaful segment. Sales were up by 5% y-o-y to RM485.3 million, with segmental contribution largely coming from general takaful. 

Such gains from the general segment were underpinned by higher gross earned contribution from the fire and motor classes. It is also worth noting that family takaful partly contributed to the higher gross earned contribution via its mortgage-related product. 

Pursuant to that, we believe that the positive trend will eke out for the rest of the year as Syarikat Takaful Malaysia edges up their market share through customer reach and operational efficiency. 

We maintain our earnings forecast at this juncture. However, we understand some downside risks may pose negative surprise in earnings for the next quarter. These include higher-than-expected claims ratio; lower-than-expected underwriting profit coming from stiff price war; higher-than-expected combined ratio especially from the motor segment. 

We maintain our “buy” call on Syarikat Takaful Malaysia with an unchanged TP of RM 4.90 pegging its FY18 forecast earnings per share at price-earnings ratio of 19 times. Our TP adjustment stemmed from our optimism in seeing higher contribution from the overall takaful. — MIDF Research, July 21