PETALING JAYA: Affin Hwang Capital expects Syarikat Takaful Malaysia Keluarga Bhd (STMK) to post a more modest earnings growth rate of 4.3% and 7.5% for 2020 and 2021, on the back of weaker outlook for the overall insurance and takaful industry.

The weaker outlook is largely due to a potential moderation in economic growth.

Despite that, the research house believes that STMK will stay resilient, underpinned by the group’s competitive edge as the preferred takaful partner, its lower-than-industry claims ratio, the shift towards Islamic banking and successful online market penetration.

“Despite cutting our 2020 and 2021 net earnings by 5.4-11.8%, STMK remains our sector preferred pick. Maintain ‘buy’ with a revised target price of RM7.80.”

Notwithstanding a more challenging market and industry headwinds, Affin Hwang believes that STMK, which adopts prudent underwriting policies, gives investors some comfort given management’s good execution in the takaful business.

“Based on feedback we obtained from STMK, management is expecting a more normalised gross earned contribution growth in Q4 as there are no new banca partners signed up year-to-date 2019.”

The research said the upbeat earnings in Q3 are likely to moderate in Q4 due to mortgage drawdowns by LPPSA (civil servants’ mortgage provider); the four preferred banca partners having met their KPIs on credit takaful sales in 2019; and an expected slowdown in passenger car sales.

“That said, we do not think that these factors are an indication of a sharp slowdown for STMK’s earnings outlook.”

It highlighted that there are other positive factors supporting its growth such as the shift towards growing Islamic financing in the country; more awareness on takaful products; wide market penetration through its online sales portal; creation of strategic partnerships with various medical organisations; and expansion in the non-motor product offerings.