Takaful Malaysia an ‘undervalued gem’ in untapped market
Posted on March 31, 2012, Saturday
KUCHING: Syarikat Takaful Malaysia Bhd (Takaful Malaysia), the only pure takaful operator listed on Bursa Malaysia, has been forecasted to see consistent earnings moving forward, thanks to the large regional Muslim population, currently low family takaful penetration rate and its niche expertise.
OSK Research Sdn Bhd (OSK Research) stated in a research note, “The takaful industry has been experiencing strong growth in Malaysia during the last decade on the back of various government initiatives to promote the country as a global Islamic financial centre.
“We see tremendous potential in the life takaful business as demand for healthcare strengthens due to demographic shifts, coupled with the fact that the family takaful penetration rate was merely 10 per cent of the population in 2010.
“Takaful Malaysia is currently trading at 0.9 times financial year 2013 (FY13) price to book value (P/BV) and 7.1 times FY13 price earnings ratio (PER). We think that it deserves to trade at more than 10 times forward earnings due to its consistent double-digit return on equity (ROE) and dividend payout,” the research house opined.
Takaful Malaysia with a market capitalisation of RM508 million was presently the only takaful operator which offered a 15 per cent no claim rebate for all its general insurance products and selected family takaful products.
With the launch of its ‘We Should Talk’ campaign this year, the research house thought that Takaful Malaysia was poised to secure more new premiums in the medium term, thus adding to its future earnings visibility.
In terms of gross takaful contributions, Takaful Malaysia was ranked second in 2011 with a 21 per cent market share. Zooming specifically into general and family takaful, Takaful Malaysia was ranked second for both categories with a market share of 19 per cent in 2011.
OSK Research expected more competition moving forward especially from bank-backed takaful operators, considering that they can distribute their products aggressively via their branches.
Despite charting a FY06 to FY10 compound annual growth rate (CAGR) of 26.5 per cent for net contributions, Malaysia’s penetration rate for overall life insurance in 2010 stood at 41 per cent of the population, or 2.8 per cent of gross domestic product (GDP), which is low compared with that in developed nations such as Singapore (6.1 per cent) and Japan (7.5 per cent),
Meanwhile, the penetration rate for takaful in Malaysia was about 10 per cent of the population of which the Muslim segment comprised more than 60 per cent; this indicated a large untapped market.
“We believe that the life insurance industry will grow at more than eight per cent annually as its growth rate is usually two to three per cent above the country’s GDP, while the takaful industry should continue to enjoy a double-digit growth of 20 to 30 per cent as the population becomes more familiar with the concept of takaful insurance moving forward.
OSK Research also believed the group’s Indonesian operations offered immense potential as the family takaful penetration rate stood at only one per cent of the population in a country with more than 213 million Muslims.
The research house forecasted a net profit RM65 million from an operating revenue of RM1.53 billion for FY12 while FY13’s bottom line was RM71.9 million from RM1.83 billion turnover.
“Among some of the assumptions behind our earnings estimates are 20 per cent growth in gross written contribution for both general and family takaful, stable overall claims ratio of 65 to 68 per cent for both general and family takaful and 15 per cent growth per year in investment income.
“Based on our calculations, we estimate the group’s FY13 net profit at 44.2 sen per share. Hence, we value Takaful Malaysia at RM4.42 per share pegged to 10 times FY13 earnings per share,” the research house concluded.