Syarikat Takaful Malaysia (STMB)’s FY12 core net profit of RM96.5m accounted for 102.8% of our estimates. Its net profit, which broke the RM100m mark, was supported by a superior contributions growth of 31.8%. Other profit drivers were: i) a remarkable 94% y-o-y growth in wakalah income, ii) higher transfer of surplus from the family takaful fund, iii) low claims for both family and general takaful, and iv) better investment income. We make no changes to our forecast. STMB remains our top pick for the sector. Maintain BUY, with RM8.00 FV pegged to 12x FY13 EPS.
Higher wakalah income. STMB's full-year results were significantly boosted by higher wakalah fees from both core operating segments (+94.1% y-o-y), which are recognized as income at the operator/ shareholder's level. The transfer of surplus from its family takaful fund to the shareholder's level also rose 32.7% y-o-y despite the lowered surplus transfer for its general takaful fund (-22.2% y-o-y), due to the shift to the Wakalah Model. That said, the average wakalah income per quarter from the family takaful fund amounted to RM46.5m while the corresponding income from general takaful fund was about RM23.6m.
To gain market share. STMB will continue to grow its market share in the takaful industry. The popular 'We Should Talk' campaigns are expected to feature more products, and rolled out under joint cooperation with its preferred financial partners. The company is also in the midst of seeking more bancatakaful partners. STMB is also penetrating into the conventional industry segment and continues to hire key management personnel with substantial contacts and expertise from that space, a move that will benefit its sales team and agency force.
Dividend yield of 4.6%. YTD, STMB has declared and paid a first and second interim single-tier DPS of 15 sen and 10 sen respectively. Based on its latest share price, this translates to a yield of 4.6% and a dividend payout of 40%.
Higher wakalah income. STMB's full-year results were significantly boosted by higher wakalah fees from both core operating segments (+94.1% y-o-y), which are recognized as income at the operator/ shareholder's level. The transfer of surplus from its family takaful fund to the shareholder's level also rose 32.7% y-o-y despite the lowered surplus transfer for its general takaful fund (-22.2% y-o-y), due to the shift to the Wakalah Model. That said, the average wakalah income per quarter from the family takaful fund amounted to RM46.5m while the corresponding income from general takaful fund was about RM23.6m.
To gain market share. STMB will continue to grow its market share in the takaful industry. The popular 'We Should Talk' campaigns are expected to feature more products, and rolled out under joint cooperation with its preferred financial partners. The company is also in the midst of seeking more bancatakaful partners. STMB is also penetrating into the conventional industry segment and continues to hire key management personnel with substantial contacts and expertise from that space, a move that will benefit its sales team and agency force.
Dividend yield of 4.6%. YTD, STMB has declared and paid a first and second interim single-tier DPS of 15 sen and 10 sen respectively. Based on its latest share price, this translates to a yield of 4.6% and a dividend payout of 40%.
Surpassing the RM100m mark. STMB's core FY12 net profit of RM96.5m was satisfactory, accounting for 102.8% of our core earnings forecast of RM93.8m. Including a one-off release of unearned contribution reserves amounting to RM4.8m, its net profit would exceed RM100m, representing a remarkable 31.8% y-o-y growth. The surge in earnings was achieved on the back of strong gross contributions growth of 31.8% y-o-y to RM1.4bn. The family takaful segment experienced a strong contributions’ growth of 44.5% y-o-y, and accounted for about 68.4% of total gross contributions. General takaful contributions, which accounted for the remainder 31.6%, rose by 13.8% y-o-y.
Low claims ratios. We note that at 51.5%, its FY12 claims ratio for the general takaful fund was lower than those recorded in previous years – 70.0% in FY11 and 56% in FY10. This was mainly attributed to the abnormally low claims ratios in the two final quarters, which saw claims ratios of only 44.4% (3Q12) and 36.4% (4Q12). For the family takaful fund, the amount of net claims paid and changes in contract liabilities grew by only 7.8% y-o-y (despite growing 38% q-o-q), significantly below the earned contributions growth of 42.2%.
Expenses remained high, but controlled. We highlighted previously that a large wakalah income contribution is likely to translate into high management expenses. Looking at the commission and wakalah ratio trend, the increased wakalah income due to the change of adoption from the Mudharabah to the Wakalah model has increased the commission/ wakalah ratio to 20%-30% for both the family and general takaful funds. Consequently, management expenses for the group level surged as much as 44% y-o-y, in line with contributions growth, while on a q-o-q basis, it grew by 25.4%. However, its management expenses ratio remained in line with historical levels, at 19%-20%. Note that our computation of management expenses ratio includes expense reserve (i.e. capitalization of unearned wakalah expenses).
Investment income improved. The family takaful fund's pure investment income surged by 18% y-o-y and 33% q-o-q and overshadowed the investment income performance of the general takaful fund, which declined marginally by 2% y-o-y. This is in line with the expansion in the investment portfolio which grew about 18% y-o-y. We also note there is an increase in realized gains from investments by 24% y-o-y.
Expenses remained high, but controlled. We highlighted previously that a large wakalah income contribution is likely to translate into high management expenses. Looking at the commission and wakalah ratio trend, the increased wakalah income due to the change of adoption from the Mudharabah to the Wakalah model has increased the commission/ wakalah ratio to 20%-30% for both the family and general takaful funds. Consequently, management expenses for the group level surged as much as 44% y-o-y, in line with contributions growth, while on a q-o-q basis, it grew by 25.4%. However, its management expenses ratio remained in line with historical levels, at 19%-20%. Note that our computation of management expenses ratio includes expense reserve (i.e. capitalization of unearned wakalah expenses).
Investment income improved. The family takaful fund's pure investment income surged by 18% y-o-y and 33% q-o-q and overshadowed the investment income performance of the general takaful fund, which declined marginally by 2% y-o-y. This is in line with the expansion in the investment portfolio which grew about 18% y-o-y. We also note there is an increase in realized gains from investments by 24% y-o-y.
YTD DPS of 25 sen. YTD, the company announced and paid first and second interim single-tier DPS of 15 sen and 10 sen respectively. Based on its latest share price, this translates to a 4.6% yield and 40% dividend payout. We leave our dividend forecasts unchanged for now.
To gain market share. STMB aims to capture a bigger slice of the takaful industry. The popular 'We Should Talk' campaigns are expected to feature more products, and rolled out under joint cooperation with STMB's preferred bancatakaful partners, which consists of several major financial institutions. STMB is also penetrating into the conventional industry segment and continues to hire key management personnel with substantial contacts and expertise from that space, a move that will benefit its sales team and agency force.
Maintain BUY. We reiterate our BUY call, with our FV retained at RM8.00, pegged to 12x FY13 EPS. The stock current trades at 8.0x and 7.2x forward earnings.
Source: OSK
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