Takaful: Profit margin weakened

Results Update

For QE31/12/2014, Takaful's net profit dropped by 11% q-o-q or 28% y-o-y to RM30 million while revenue inched up 2% q-o-q or 6% y-o-y to RM401 million.

Revenue increased y-o-y mainly attributable to higher sales generated by General Takaful business and higher net investment income. For the quarter under review, the Group recorded profit before zakat and taxation of RM44.2 million, decreased by 17.7% as compared to RM53.7 million in the same period last year. The drop in profit before zakat and taxation is due to lower surplus transfer in the quarter under review from Family Takaful (of M4.4 million as compared to RM29.7 million in the same period last year) which more than offset the higher surplus transfer from General Takaful (of RM20.3 million as compared to RM17.0 million in the same period last year).


Table: Takaful's last 8 quarters' results

From the Chart 1 below, we can see that the uptrend for the revenue is intact but the uptrend for the profit margin is broken. Going forward, I expect profits to be flattish at best.


Chart 1: Takaful's last 35 quarters' results

Valuation

Takaful (closed at RM11.30 yesterday) is now trading at a PE of 13 times (based on the last 4 quarters' EPS of 86.3 sen). It has a Dividend Yield of 3.5%. At this PER & DY, Takaful is deemed fairly valued.

Technical Outlook

The stock has been in an uptrend. It is resting on the 20-month SMA line at RM11.30. A break of this support could send the stock to the important psychological level of RM10.00.


Chart 2: Takaful's weekly chart as at Jan 10, 2015 (Source: ShareInvestor.com)

Conclusion

Based on fairly reasonable valuation & bullish technical outlook, Takaful is still a good stock for long-term investment. However, the financial performance has begun to weaken and this could lead to further price weakness ahead. If the share price were to breach the RM11.30 mark, you should consider reducing position on this stock.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Takaful.