Analysts eye higher contribution from Syarikat Takaful Malaysia’s overall business

KUCHING: Analysts are optimistic that they will see higher contribution from Syarikat Takaful Malaysia Bhd’s (Syarikat Takaful Malaysia) overall takaful business, while also noting that the impact of detarriffication will be minimal on the group.

Following a visit to Syarikat Takaful Malaysia to learn about recent developments in the company, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) gathered that the management is taking proactive approach in light of the second phase of motor liberalisation.

“The management expressed its optimism to seeing more underwriting activities in the motor segment,” MIDF Research said.

“With 45 per cent exposure in the general takaful business, the management estimate that contribution from said segment will continue its upward trend, outperforming the conventional insurance business’ flattish trajectory.”

According to MIDF Research, while the management understand the impact of motor detarriffication, such as stiff price war and compressed margin, Syarikat Takaful Malaysia will maintain the 15 per cent cash back campaign, given it is a unique competitive proposition to potential customers.

“Additionally, the company is not overly concern on the sustainability of this campaign,” the research arm said.

“This is stemming from its strong underwriting fundamental and unique takaful mechanism compared to conventional insurers’, plus its consistent surplus/ profit available in Takaful fund every year.”

Given the continuation of this campaign, MIDF Research was optimistic that Syarikat Takaful Malaysia will be able to sustain the growth for the group’s motor insurance segment.

In addition, the research arm noted that other insurance companies are scaling back on this segment, which it believed would leave room for Syarikat Takaful Malaysia to expand the group’s market share.

MIDF Research highlighted that management is putting more focus in reducing Syarikat Takaful Malaysia’s overall cost of the business.

“Few initiatives have been set up to expedite claim process and adopt cost-efficient distribution channel, which will be primarily supported by company’s digital strategy,” it said.

However, the research arm did not foresee the impact to be immediate but will most likely be in the next two to three years.

MIDF Research thus maintained its earnings forecast at this juncture.

The research arm noted that the impact of detarriffication will be minimal given the premium band placed by Bank Negara.

“It is worth to note that some downside risks may pose negative surprise in earnings,” the research arm said.

“These include higher than expected claims ratio, lower than expected underwriting profit coming from stiff price war and higher than expected combined ratio especially from motor segment.”

All in, MIDF Research maintained its ‘buy’ call on Syarikat Takaful Malaysia with an adjusted target price of RM 4.90 per share, from RM4.84 per share, pegging the group’s financial year 2018 forecast (FY18F) earnings per share (EPS) to price earnings ratio (PER) of 19-fold.