KUALA LUMPUR (Jan 16): Affin Hwang Investment Bank Bhd has downgraded Syarikat Takaful Malaysia Keluarga Bhd (STMK) to "hold" from "buy" with a lower target price (TP) of RM5.80 from RM7.80 previously.
In a note today, Affin Hwang said the reduced TP was made based on a revised price per book value (P/BV) target multiple of 3.33 times, post net earnings revisions of -3.4% in 2020E, after factoring in a five-month impact from the termination of a banca agreement with RHB Islamic Bank.
The research house noted that RHB Islamic Bank has informed STMK of its decision not to continue with the Bancatakaful Service Agreement in a letter dated Jan 15, which will thus cease on July 31.
"RHB Islamic Bank mentioned that it will start the process to secure a new long-term takaful partner before July 31, 2020," it said.
Affin Hwang believes that RHB Islamic has a meaningful contribution towards STMK's family Takaful gross earned contribution (GEC), potentially in the region of between 20% and 30%.
Assuming this amount is removed from STMK's topline, the research house foresees a decline in the group's GEC growth from 8.2% to 7.1% y-o-y (y-o-y) in 2020E and from 8.3% to 6% y-o-y in 2021E.
"Notwithstanding a more challenging market and industry headwinds, we believe that STMK, which adopts prudent underwriting policies, gives investors some comfort given management's good execution in the Takaful business," Affin Hwang said.
At 10.59am, STMK shares fell 41 sen or 7.19% to RM5.29, valuing it at RM4.37 billion.