2QFY25 Results Review
Overhang Priced In?

Results in a nutshell:

• 6MFY25’s Core NP of RM178m was Below/Below our/street forecasts: 42%/44% of full-year forecasts. We did not expect the higher effective tax rate. Although we were initially forecasting a stronger 2HFY25, we believe the earnings outlook may be negatively impacted by BNM’s new personal financing guidelines and financing costs from the upcoming proposed RM1b Tier 2 subordinated sukuk programme.
• No dividend announcement.
• 6MFY25’s Core net profit (NP) of RM178m down by -9%yoy. Increased takaful revenue was dragged by increased takaful, retakaful, and tax expenses, as well as weaker investment results.
• 2QFY25’s Core NP of RM84m down by -11%qoq. Reduced takaful expenses and improved investment returns were not enough to offset a sharp reduction in takaful revenue.

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6MFY25’s GWP rose +14%yoy. Family GWP was the bigger driver, rising +19%yoy, while General GWP rose by +5%yoy.

Have a look at:

• Uncertainty on the one-off impact of RHB bancassurance renewal on the balance sheet. Assuming the RM1.3b upfront fee is split 50:50 between STMB and Tokio-Marine, this still implies a hefty RM650m sum. The impact on the income statement will be minimal, as the RM650m is amortised on a straight-line basis over 20 years. The balance sheet, depending on the accounting treatment, could either face a steep drop-off in book value (which is concerning) or something more gradual. We think management will act prudently and sell off some of its investments for cash to avoid too violent a dip in book value in 2HFY25.
  • Apart from the RHB deal, no further big signings ahead. Management is not expecting any further bancassurance renewals until 2028, nor is it expecting any new partnerships for now.
• Expect financing costs from the upcoming proposed RM1.0b sukuk programme. RAM assigned an AA3 rating to STMB’s maiden sukuk programme, which we think implies a profit rate within the 3.6-4.0% range. The Group has no outstanding debt at the moment. The proceeds from the exercise will be used for working capital and corporate purposes.
• B2B exemption may ease worries on SST implementation. There was some concern about Phase 2 of the expanded SST scope (effective 1 Sep), which includes SST on bancatakaful commissions and other relations. STMB is much more reliant on bancatakaful than its peers. The worry is that STMB’s ability to pass on costs in the short term would be limited, due to increased scrutiny on insurance and takaful premiums.

Management has yet to comment on the specifics of the issue. However, according to one of STMB’s peers, the guidelines published by the Royal Malaysian Customs Department state that it is possible to acquire B2B exemption if both the supplier and recipient of the said commission are financial institutions – similar to STMB’s current arrangement. Hence, commissions paid by insurers to banks qualify for service tax exemption.

• Ongoing uncertainty on the impact of BNM’s regulations on personal financing. For context, BNM proposed that several types of home financing products be treated as personal financing products, capping the financing tenure to a maximum of 10 years. This makes home financing products, the bread and butter of STMB’s Family segment, less attractive. As a result, the Group has switched its focus from home financing to personal loans (already evident in 1QFY25). We will be looking to see ongoing trends and whether the Group has made any progress or changes on this front.

Forecasts revised: FY25F/FY26F/FY27F Core NP adjusted by -5%/-6%/-10%. To reflect weaker results stemming from additional finance costs from the proposed RM1b Tier 2 subordinated sukuk programme, higher tax rates, and lower investment returns.

Key downside risks. (1) Steep reinsurance hardening, (2) Slower-than-expected premium growth, (3) Higher-than-expected claims ratio.

Maintain BUY call: Revised GGM-TP of RM 4.11 (from RM4.59). The TP is based on a revised FY26F P/BV of 1.99x (formerly 1.84x, rolled on from FY25F), to reflect altered earnings prospects and ROE-based valuations.

(GGM assumptions: FY26F ROE of 22.3%, LTG of 4.0% & COE of 13.2%)

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FIG 1: Quarterly results

Ratios (%)

*The figures include income/expenses not normally found in a combined ratio. Thus, STMB’s combined ratio may not be the most reliable profitability indicator.
Source: Company, MBSBR

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FIG 2: Quarterly results (Family)

Source: Company, MBSBR

FIG 3: Quarterly results (General)

Source: Company, MBSBR

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FIG 4: QoQ P/L walk (Quarterly results)

FIG 5: YoY P/L walk (Quarterly results)

FIG 6: YoY P/L walk (Cumulative results)

FIG 7: QoQ P/L walk (Multiple Quarters)

Source: Company, MBSBR

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FINANCIAL SUMMARY

INCOME STATEMENT

BALANCE SHEET

FINANCIAL RATIOS

Profitability (%)

Combined ratio (%)

Growth (%)

Valuation metrics

Source: Company, MBSBR

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