Takaful Malaysia Keluarga likely to pay special dividend

PETALING JAYA: There is potential for Syarikat Takaful Malaysia Keluarga Bhd (STMK) to pay out special dividends following its low capital expenditure (capex) requirements, said Affin Hwang Capital Research.

“Our investment thesis on STMK is based on its potential to deliver a return on equity (ROE) of circa 33%-35% in 2019-2021, which is driven by new growth strategies such as expansion of high-margin products like credit-related Takaful cover (for banks’ customers) while leveraging on the digital channels and affiliated partners for distribution (which helps in lowering agent’s fees),” the research house said.

It said part of these initiatives are already reflected in the insurer’s fourth quarter earnings that saw net profit jumping 61.9% year-on-year (y-o-y).

Affin Hwang is projecting a net profit growth of 23.7%, 25.9% and 17% for STMK’s 2019, 2020 and 2021 financial years, respectively.

The research house said dividend yields appeared to be attractive at 4.4% to 6.5%.

“We believe STMK has been on an aggressive market expansion drive. STMK is in a sweet spot and it is outperforming industry growth,” it said.

STMK saw both its family takaful (2018 net earned contribution +25.6% y-o-y) and general takaful (+35.3% y-o-y) outperforming takaful industry growth rate of 15.2% y-o-y and 17% y-o-y respectively for 2018, it said.

“Based on STMK’s historical track record, its net profit grew at a compounded annual growth rate of nearly 20% from 2012 to 2018, while ROE has increased steadily from 21% in 2012 to 32.7% in 2018,” the research house said.

Affin Hwang has initiated coverage on STMK with a “buy” rating and a target price of RM8.30 (at a 5.6 times price-to-book value target).

The research house said the rating is premised upon its leadership, superior ROEs, bancatakaful partners and STMK being a preferred digital insurance provider.

Source : TheStar