This article first appeared in The Edge Malaysia Weekly on December 18, 2023 - December 24, 2023

SYARIKAT Takaful Malaysia Keluarga Bhd’s (STMK) launch of a new digital platform three weeks ago strengthens its footprint in the digital insurance and takaful space, a move analysts say will enable it to gain new customer segments and compete more effectively with other players, including upcoming digital insurance and takaful operators (DITOs).

The new platform, known as Kaotim, is meant to deliver comprehensive yet affordable products online. The platform is deemed necessary for STMK to compete in an increasingly digital financial landscape that will soon include more players with fresh, innovative business models.

Recall that Bank Negara Malaysia plans to issue up to five DITO licences to players that will focus on the unserved and underserved market. The central bank is widely expected to invite applications for the licences in the second half of next year.

Nevertheless, analysts say they do not expect STMK’s digital line of products to provide a material boost to its revenue over the next few years. Those that The Edge spoke to say they have no plans to revise their earnings forecast for STMK following the latest development.

The group has released its first product over the platform, MediKad, which is an all-in-one affordable medical coverage plan that starts from as low as RM38 a month.

According to STMK, MediKad provides cashless admission to panel hospitals in Malaysia, unlimited hospital admission days on room and board, and daily income for admission to government hospitals. The product is meant for Malaysians between the ages of six and 69, with a coverage period up to age 85.

“It does look like MediKad is tailor-made for first-time insurance takers. Monthly premiums as low as RM38 seem aimed at the B40 (bottom 40% income group),” an analyst who tracks the insurance sector tells The Edge.

“With those kinds of rates, the contribution to revenue will be marginal. However, what is positive is that this is a gateway for STMK to expand its customer base, acquire new customers and, maybe, at some point further along the customer journey, it can cross-sell the bigger-ticket insurance products.”

STMK group CEO Nor Azman Zainal says the launch of Kaotim underscores the group’s strategic effort to strengthen its presence in the digital insurance and takaful sphere and meet the fast-evolving demands and expectations of customers.

“Kaotim underpins our strategic move to reinforce our retail direct business and gain new customers, enabling seamless online transactions to suit evolving lifestyles. We are spearheading the digital initiative to be a leading digital player in the insurance and takaful industry and fulfilling the long-term aspiration towards digitalising the financial services industry,” he says in an emailed response to questions from The Edge.

Nor Azman says the launch of MediKad is timely to address customer concerns about the increasing cost of medical insurance and takaful coverage. “Many customers are looking for more affordable medical coverage through direct online purchases.”

Customers signing up for its medical card online can complete their transaction “in a few minutes” and get covered within the day, he adds.

“We leverage the lower transaction cost of the digital platform to deliver a better pricing and accessible takaful plan to the market. This is part of our holistic digital plan to attract new customer segments directly and better serve Malaysia’s growing population while enhancing the financial resilience of customers whose medical coverage is inadequate or high-priced,” he says.

According to Nor Azman, demand for affordable protection products covering life and health is expected to grow significantly.

“We are optimistic about expanding our digital footprint … to achieve sustainable top- and bottom-line growth. We expect the take-up of our online protection plans to increase commendably and generate business growth. We will leverage our underwriting and digital capabilities to offer competitive and affordable products and further penetrate the retail direct business segment,” he says.

Analysts say STMK’s growth going forward will be fuelled by its bancatakaful business. The group is understood to have bancatakaful partnerships with at least six lenders, namely Affin Islamic Bank, Agrobank, Bank Rakyat, Bank Islam, Aeon Credit and RHB Islamic Bank.

“We continue to expect the group to [be supported] with its bancatakaful portfolio leading the charge for its credit-related products. On the flip side, the group is likely to be less susceptible to pressures seen in the fire class insurance space following further price liberalisation introduced in 2HFY2023. The group’s general insurance business makes up less than 50% of top-line contributions,” says Kenanga Research in a Nov 24 report.

STMK’s net profit for the third quarter of the financial year ending Dec 31, 2023, rose by 25% year on year (y-o-y) to RM91.1 million. This took its earnings for the nine months to RM276.6 million, up 28% y-o-y. This was largely in line with analysts’ expectations, coming in at about 78% of consensus estimates for the full year.

“We regard the results in line as we expect a weaker 4Q2023 net profit. This is because the final quarter is seasonally the weakest quarter for STMK and we think the net investment income which jumped 55.6% y-o-y in 9MFY2023 would not be sustainable in the longer term,” says CGS-CIMB Research in a recent report.

Most analysts who track STMK have a “buy” call on the stock, encouraged by its strong top-line growth over the years. The share price has gained 7.3% this year, closing at RM3.69 on Dec 8 for a market capitalisation of RM3.09 billion.

Despite the positive calls, the share price has been listless and is still a long way off from its post-pandemic high of RM5.00, which was hit on Aug 28, 2020. One analyst suggests that it may be because investors find it hard to understand the takaful business.

“There is a lot of investor education that is required to fully understand the takaful business and how it is accounted for in the financial statements. And because STMK is the only public-listed player, investors have no other company to use as a reference,” he says.

RHB Research, in a Nov 24 report, says it likes STMK for its strong top-line momentum and market leadership in the “promising” takaful space. “Its price-to-book valuation of 1.6 times … strikes us as undemanding, as the group is charting strong new business value, revenue and bottom-line growth. Also, as there is now greater clarity on the impact of Malaysia Financial Reporting Standard 17 (MFRS 17), we believe a re-rating is warranted,” it says, maintaining its “buy” and target price of RM4.30 on the stock.

MFRS 17, which superseded MFRS 4, is a new accounting standard for insurance contracts that all Malaysian insurers had to apply for from Jan 1 this year. The implications for an insurer’s financials and operations differ from company to company. According to RHB Research, STMK’s retained earnings shrank 34% to RM1.02 billion upon transition, while its total equity decreased by 29%.

“The change in the accounting standard does not impact the fundamentals of our business, including financial strength, claims-paying ability, product profitability or dividend distribution ability of [the takaful business],” Nor Azman says.

“Under the MFRS 4 requirement, the takaful … profits can be recognised in full immediately in the income statement, whereas, under MFRS 17, the profits are deferred and recognised as “contractual service margin” and released over the lifetime of the contract. In short, there is no change to the overall profitability of our portfolio and our capability to underwrite businesses remains resilient.” 

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