TAKAFUL's 9MFY24 results (+7%) met expectations of which we anticipate a seasonally slower 4QFY24, underpinned by higher claims. While the group continues to be impacted by volatility in the fixed income markets, this is well buffered by its relative lack of retakaful during the year. Maintain OUTPERFORM and TP of RM4.35.

9MFY24 broadly within expectations. Although 9MFY24 net profit made up of 82% of our full-year forecast, we deem this to be broadly within as 4Q reporting is typically softer due to higher year-end claims disbursements and expenses.

YoY, 9MFY24 net profit rose by 7% mostly thanks to fewer retakaful transactions during the period, uplifting service results by 21%. This more than cushioned heavier unwinding of family takaful contract liabilities. The group also enjoyed higher fair value gains from its debt securities portfolio.

QoQ. 3QFY24 net profit increased by 8% thanks to fewer claims underwriting seen during the quarter. On the flipside, net investment income nearly halved from the normalisation of debt securities prices as bond yields reversed.

Outlook. Though the group may seem to be mostly supported by its gains from investment, TAKAFUL has made strides to stimulate organic growth from its digital initiatives to provide more assessable service to its general and family takaful products.

Meanwhile, its core pipeline of credit-related takaful products will be supported by its Bancatakaful network. Based on its relatively low exposure to the fire class insurance space (estimated to be in the low- teens of overall contract assets), we continue to view TAKAFUL to be less at risk to price competition arising from the liberalisation of fire class insurance.

Forecasts. Unchanged.

Valuations. Our TP of RM4.35 is based on an unchanged 1.7x FY25F PBV. This comes at a discount against the industry average PBV of 2.1x on the back of: (i) lower net margins of 11% (vs peer's 17%), and (ii) lower dividend returns of 4%-5% (vs peer's 6%-7%).

TAKAFUL's lower sensitivity to detariffication is further emphasised with the strong growth seen in its other business segments. On the other hand, its leading ROE against peers could make up for its softer performing metrics. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintain it at OUTPERFORM.

Risks to our call include: (i) lower premium underwritten, (ii) higher- than-expected claims incurred, and (iii) higher-than-expected management expense ratio.

Source: Kenanga Research - 2 Dec 2024