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Highest returns to shareholders over three years
Finance: Syarikat Takaful Malaysia
by Esther Lee
Rare shariah-compliant gem
Investors who bought into Syarikat Takaful Malaysia Bhd three years ago would be reaping good returns today. Based on capital appreciation alone, these investors would have seen the stock surge 241.85% from RM1.19 to RM4.06 between April 1, 2013 (FY2013), and March 31, 2016.
Part of the gain was likely due to a one-for-five share split in February last year, which made the takaful operator’s shares more affordable to a wider group of investors. Prior to the corporate action, Syarikat Takaful was trading at around RM11 apiece.
Not only that, investors would have also enjoyed a stellar and consistent return on equity (ROE) of over 20% each year from FY2012 to FY2015.
The takaful operator has been distributing cash to shareholders as well with a payout ratio of more than 80% in FY2013 and FY2014. But this dropped to 40% in FY2015 — about the same as in FY2012 — but the absolute payout in FY2015 was higher at RM57 million compared with RM41 million in FY2012. Yields, too, were compressed, from more than 6% in FY2012 to 1.88% in FY2015.
Still, Syarikat Takaful’s profit before tax and zakat grew steadily at a three-year compound annual growth rate of 17.6% from RM125.46 million in FY2012 to RM204.21 million in FY2015.
Moving forward, it is expected to continue benefiting from Malaysia’s position as an Islamic finance hub.
“We believe the group will benefit from the potential expansion of takaful insurance based on banks’ focus on growing Islamic loans compared with conventional loans in the next three to four years. Management also sees the group benefiting from banks’ focus on SMEs, which will offer growth to both its family and general takaful products,” says MIDF Research in an April report.
One of Syarikat Takaful’s strategies is to concentrate on growing the corporate client business of both its family and general takaful insurance. The group is expecting its unique proposition of 15% cash-back rebate for its general takaful products to continue to help it gain market share.
As the insurance and takaful industry goes through regulatory changes over the next few years, Syarikat Takaful says in its 2015 annual report that mergers and acquisitions are expected to take place in the coming years.
MIDF Research, for one, is confident that Syarikat Takaful will be able to grow its net earned contribution on the back of its 15% cash-back rebate. It also expects the group to continue to benefit from the vast untapped takaful market in the country.
“Although the liberalisation of the motor and fire tariff may increase the risk of lower net earned contribution due to intense pricing competition, we opine that the group’s low cost of coverage for its existing takaful products has already enabled it to price lower than the market. We don’t see its existing customers with good claims experience switching to other takaful insurers,” says the research house.