Malaysia: STMK still resilient despite weaker outlook
Source: Middle East Insurance Review | Dec 2019
Syarikat Takaful Malaysia Keluarga (STMK) is expected to post a more modest earnings growth rate of 4.3% and 7.5% for 2020 and 2021 – in comparison to a previous forecast of 10% to 15% – on the back of weaker outlook for the overall insurance and takaful industry, according to research house Affin Hwang Capital.
Despite the weaker outlook, the research house believes that STMK will stay resilient, underpinned by its competitive edge as the preferred takaful partner, its lower-than-industry claims ratio, a shift towards Islamic banking and a successful online market penetration.
Based on the feedback obtained from STMK, the management is expecting a more normalised gross earned contribution growth for 4Q2019 as there are no new bancassurance partners signed up year-to-date.
The research said the upbeat earnings in 3Q are likely to moderate in 4Q due to mortgage drawdowns by LPPSA, a civil servants’ mortgage provider; the four preferred bancassurance partners having met their KPIs on credit takaful sales in 2019; and an expected slowdown in passenger car sales.
“That said, we do not think that these factors are an indication of a sharp slowdown for STMK’s earnings outlook,” said the report.
“Notwithstanding a more challenging market and industry headwinds, we believe STMK, with prudent underwriting policies, gives investors some comfort given the management’s good execution in the takaful business. We reiterate our ‘buy’ rating, though we revise our 12-month TP to MYR7.80 from MYR8.40, based on a price-to-book value target multiple of 4.46 times, after earnings estimate revisions of -5.4% for FY2020 and -11.8% for FY2021. Downside risks are higher claims, a weaker premium growth and fraud cases.” M