We took Syarikat Takaful Malaysia (STMB)’s management on a non-deal roadshow to Hong Kong recently. We found assurance that while the takaful industry has a lot of latent growth potential, the company is unlikely to be fazed by competition in this sphere due to its niche. Maintain BUY, with RM8.00 FV, pegged to 12x FY13 EPS. Our FV translates into a 2.25x FY13 BV, which is a slight premium to regional average but close to recent M&A P/BV of 2.1x.
HK non-deal roadshow a success. We took STMB to Hong Kong last week and met up with nine institutional investors. Although not familiar with the takaful concept, the investors were very interested in the company’s business model and prospects. A few of the investors even followed up with us to understand the company better. This reaffirms our positive view on STMB.
Immediate competitive threats unlikely. Management does not foresee any immediate factors that will significantly affect the company’s performance, owing to: i) its market leadership in group takaful products, ii) other takaful operators are likely to find it difficult to match its unique incentive offerings as STMB has a track record in fulfilling its promise of a 15% no-claim rebate, and iii) it has unique customer-oriented IT portals to enhance policyholders' experience.
Indonesian venture yet to bear fruit. STMB's banca tie-up with Bank Muamalat Indonesia's 3,000-branch network just broke even recently and management does not see any immediate profit upside potential as yet, due to: i) the unpredictability of Indonesia’s new regulatory framework now taking shape, and ii) the lack of economies of scale compared with Indonesia’s more established conventional players which have larger scale and networks.
Maintain BUY. We make no changes to our forecasts and maintain our BUY call and FV at RM8.00, pegged to 12x FY13 EPS. At the current price, our FV offers a 36.8% price upside potential. In terms of price-to-book (PB), our RM8.00 FV translates into 2.25x FY13 BV, which is at a 8.7% premium to the average PB multiple of recent insurance M&A transactions in Malaysia. Benchmarked against the deals transacted in the industry without taking into account the pending acquisitions of CIMB Aviva and ING Malaysia, we deem our valuation fair.
HK non-deal roadshow a success. We took STMB to Hong Kong last week and met up with nine institutional investors. Although not familiar with the takaful concept, the investors were very interested in the company’s business model and prospects. A few of the investors even followed up with us to understand the company better. This reaffirms our positive view on STMB.
Immediate competitive threats unlikely. Management does not foresee any immediate factors that will significantly affect the company’s performance, owing to: i) its market leadership in group takaful products, ii) other takaful operators are likely to find it difficult to match its unique incentive offerings as STMB has a track record in fulfilling its promise of a 15% no-claim rebate, and iii) it has unique customer-oriented IT portals to enhance policyholders' experience.
Indonesian venture yet to bear fruit. STMB's banca tie-up with Bank Muamalat Indonesia's 3,000-branch network just broke even recently and management does not see any immediate profit upside potential as yet, due to: i) the unpredictability of Indonesia’s new regulatory framework now taking shape, and ii) the lack of economies of scale compared with Indonesia’s more established conventional players which have larger scale and networks.
Maintain BUY. We make no changes to our forecasts and maintain our BUY call and FV at RM8.00, pegged to 12x FY13 EPS. At the current price, our FV offers a 36.8% price upside potential. In terms of price-to-book (PB), our RM8.00 FV translates into 2.25x FY13 BV, which is at a 8.7% premium to the average PB multiple of recent insurance M&A transactions in Malaysia. Benchmarked against the deals transacted in the industry without taking into account the pending acquisitions of CIMB Aviva and ING Malaysia, we deem our valuation fair.
Takaful growth outpaces conventional insurance. Based on the latest statistics from Insurance News, the market penetration rate for family takaful had risen from 12.8% in Dec 2011 to 13.0% as at July 2012. This is an encouraging figure given that over the same period, the life insurance segment recorded a slight dip in market penetration from 54.7% to 54.4%. Also, within the general insurance segment, general takaful's gross direct contributions grew 14.2% in 1H12, exceeding the conventional general insurance's gross direct premium growth of 9.1%.
Immediate competitive threat unlikely. Management does not foresee any immediate competition that will significantly affect STMB's performance, due to the reasons highlighted below:- i) Business focus. STMB has a unique positioning and is the No.1 in group life insurance products (MRTT, group hospital), for which management estimates STMB commands a 35%-40% market share. In the meantime, several key takaful competitors are strongly positioned in other segments, namely investment-linked (IL) products. For instance, MAA Takaful commands a 31% share in regular IL products while PruBSN holds 29.1%. STMB thinks that its business focus is its main driver in the takaful landscape and hence does not see its peers as a significant threat as takaful operators are likely to remain focused on growing their strongest selling products. STMB plans to strengthen its offering of IL products, which currently make up only a very small percentage of total gross contribution.
ii) Other takaful players to join the rebate bandwagon? Presently, STMB is the only takaful operator offering a 15% no-claim rebate on all its general takaful products and selected family takaful products, on the condition that a policyholder has not raised any claim within the coverage period. As we highlighted in our previous reports, only STMB is able to offer such an incentive due to the payout support from its large accumulated reserve funds, thanks to its long operating history. To a question whether other takaful operators would eventually roll out similar incentives, management believes that its first-mover advantage, established track record and consistency in fulfilling policyholders' claims are vital to sustaining its customer appeal, as opposed to the uncertainty of other takaful peers fulfilling such promises. On average, STMB pays out RM20m cash rebates every year to individuals and corporations.
Immediate competitive threat unlikely. Management does not foresee any immediate competition that will significantly affect STMB's performance, due to the reasons highlighted below:- i) Business focus. STMB has a unique positioning and is the No.1 in group life insurance products (MRTT, group hospital), for which management estimates STMB commands a 35%-40% market share. In the meantime, several key takaful competitors are strongly positioned in other segments, namely investment-linked (IL) products. For instance, MAA Takaful commands a 31% share in regular IL products while PruBSN holds 29.1%. STMB thinks that its business focus is its main driver in the takaful landscape and hence does not see its peers as a significant threat as takaful operators are likely to remain focused on growing their strongest selling products. STMB plans to strengthen its offering of IL products, which currently make up only a very small percentage of total gross contribution.
ii) Other takaful players to join the rebate bandwagon? Presently, STMB is the only takaful operator offering a 15% no-claim rebate on all its general takaful products and selected family takaful products, on the condition that a policyholder has not raised any claim within the coverage period. As we highlighted in our previous reports, only STMB is able to offer such an incentive due to the payout support from its large accumulated reserve funds, thanks to its long operating history. To a question whether other takaful operators would eventually roll out similar incentives, management believes that its first-mover advantage, established track record and consistency in fulfilling policyholders' claims are vital to sustaining its customer appeal, as opposed to the uncertainty of other takaful peers fulfilling such promises. On average, STMB pays out RM20m cash rebates every year to individuals and corporations.
iii) IT portals enhance policyholders' experience. Currently, very few insurance and takaful companies offer a valued added IT service directly to their insurance customers. STMB's myTakaful Customer is a user-friendly customer portal that provides policyholders with a user ID access to a single view on the status of their certificates, payment history, fund performance and income tax statement. This is another point of differentiation for STMB.
Indonesia venture yet to bear fruit. STMB's bancatakaful tie-up with Bank Muamalat Indonesia's 3,000-branch network recently managed to break even but management does not see any immediate signs of potential profit upside as yet, due to: i) the unpredictable nature of that country’s new regulatory framework which is now being shaped, and the foreign shareholding restrictions on Bank Muamalat may affect STMB's partnership prospects, and ii) its lack of economies of scale versus Indonesia’s more established conventional players which have larger scale and networks. STMB has not committed any additional capital and working on its existing infrastructure, it is presently focusing on marketing its products in areas such as Jakarta and Jawa.
Bancatakaful to remain key distribution channel. With the continuing tie-ups with several banks including Bank Islam and MBSB, bancatakaful is expected to be the main driver of STMB's revenue growth for wakalah credit and MRTT products. Sales of the other group takaful products will continue to be driven by brokers and corporate agents. Management expects this distribution channel to play a more prominent role in the future in line with the growth in its group takaful products. STMB plans to expand its agent base next year by adding at least 500 retail agents to the current 900-1,000 and increasing the number of corporate agents from ~1,500
currently to about 2,000 or 2,500. The east coast, KL and Johor regions are expected to continue to be the target regions for the bulk of STMB's sales growth.
Maintain BUY. We are leaving our forecasts unchanged and maintain our BUY call and RM8.00 FV, pegged to 12x FY13 EPS. At the current price of RM5.85, our FV offers a 36.8% price upside. In terms of price-to-book (PB), our RM8.00 FV translates into 2.25x FY13 BV, representing an 8.7% premium to the average PB multiple of recent insurance M&A transactions in Malaysia. Benchmarked against the industry’s recent deals and without incorporating the pending acquisitions of CIMB Aviva and ING Malaysia, we deem our valuations fair.
Indonesia venture yet to bear fruit. STMB's bancatakaful tie-up with Bank Muamalat Indonesia's 3,000-branch network recently managed to break even but management does not see any immediate signs of potential profit upside as yet, due to: i) the unpredictable nature of that country’s new regulatory framework which is now being shaped, and the foreign shareholding restrictions on Bank Muamalat may affect STMB's partnership prospects, and ii) its lack of economies of scale versus Indonesia’s more established conventional players which have larger scale and networks. STMB has not committed any additional capital and working on its existing infrastructure, it is presently focusing on marketing its products in areas such as Jakarta and Jawa.
Bancatakaful to remain key distribution channel. With the continuing tie-ups with several banks including Bank Islam and MBSB, bancatakaful is expected to be the main driver of STMB's revenue growth for wakalah credit and MRTT products. Sales of the other group takaful products will continue to be driven by brokers and corporate agents. Management expects this distribution channel to play a more prominent role in the future in line with the growth in its group takaful products. STMB plans to expand its agent base next year by adding at least 500 retail agents to the current 900-1,000 and increasing the number of corporate agents from ~1,500
currently to about 2,000 or 2,500. The east coast, KL and Johor regions are expected to continue to be the target regions for the bulk of STMB's sales growth.
Maintain BUY. We are leaving our forecasts unchanged and maintain our BUY call and RM8.00 FV, pegged to 12x FY13 EPS. At the current price of RM5.85, our FV offers a 36.8% price upside. In terms of price-to-book (PB), our RM8.00 FV translates into 2.25x FY13 BV, representing an 8.7% premium to the average PB multiple of recent insurance M&A transactions in Malaysia. Benchmarked against the industry’s recent deals and without incorporating the pending acquisitions of CIMB Aviva and ING Malaysia, we deem our valuations fair.
Source: OSK
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