• Stay BUY, new MYR4.90 TP (from MYR4.40), 30% upside, c.4% FY25F yield. Syarikat Takaful Malaysia Keluarga’s 9M24 results were in line with our and Street’s estimates. Takaful revenue growth remained strong, potentially reflecting repricing efforts, though investment returns appear to be slowing down after a strong 1H24. We continue to like STMB for its leadership in the bright takaful space, whereas its new dividend reinvestment plan (DRP) could allow for higher dividend payouts in the future.

• Results review. 3Q24 net profit of MYR100.7m (+10% YoY, +8% QoQ) brought the 9M24 sum to MYR296.1m (+7% YoY), forming 72% and 76% of our and consensus’ full-year estimates. For 9M, takaful revenue surged 36% YoY on strong revenue growth from both the Family (+39%) and General (+17%) funds. Underwriting margin slid 1ppt to 6.4%, but this was mitigated by better net investment and finance returns (+5%). On a sequential basis, we saw underwriting margin rebound QoQ to 10.8% (2Q24: 2.0%), which we think reflects its ongoing repricing efforts to mitigate rising claims costs. All in, 9M24 ROE stood at 22%, down 2ppts YoY due to the larger equity base.

• Higher dividend payouts? STMB announced a MYR0.17 interim DPS, which translates to a payout of 48% on 9M24 profits, and is likely the final dividend announcement for the year (per historical trends). This came ahead of our forecasted MYR0.15, and is a significant increase from the MYR0.14/42% payout announced in 9M23. We think the larger payout is sustainable, as STMB recently established a DRP, which would allow for greater conservation of capital, especially with evolving capital regulations. Note that investors are given the option to not exercise the DRP on the 9M24 DPS (ie receive full payment in cash). STMB currently maintains a capital adequacy ratio in excess of the current 130% regulatory minimum.

• Risk fund analysis. Repricing initiatives appear to be bearing fruit, especially on the Family takaful side, where 9M24 revenue growth (+39% YoY) exceeded claims growth (+30%) – this allowed the segment’s underwriting surplus to expand by MYR175m. The general takaful segment looks to still be facing claims pressure, as 9M24 underwriting surplus remained flat despite the strong 17% YoY revenue growth. We also note the sequential decline in the Family fund’s investment returns, which was impacted by marked-to- market losses (vs gains in 2Q24). This is not entirely concerning, as the global rate cut cycle could allow for some turnaround in investment returns in 4Q.

• Forecasts trimmed by 3% as we assume a higher effective tax rate, in line with the YTD showing. We roll forward our valuation year to FY25F, and as a result, our TP rises to MYR4.90 (from MYR4.40). Our TP includes an unchanged 0% ESG premium/discount.

Source: RHB Securities Research - 2 Dec 2024