U Capital – The Company for Cooperative Insurance (Tawuniya) – 4Q23 Result Review

Issue Date: 11 March 2024

Insurance revenue improve 29% YoY in 4Q23, in-line with Bloomberg consensus but ahead of U-Capital estimate
Tawuniya posted an insurance revenue of SAR 4,200mn (29% YoY and 6% QoQ) in 4Q23, in-line with Bloomberg consensus of SAR 4,254mn but ahead of U-Capital estimate of SAR 3,812mn. For FY23, Insurance revenue stood at SAR 15,265mn reflecting a 34% YoY growth compared to FY22. This growth was primarily driven by a 28.6% growth in GWP due to the strong performance of the main business lines (Health, Motor, and General insurance).

 

Insurance Service results grows significantly QoQ in 4Q23
Insurance service results for Tawuniya for 4Q23 stood at SAR 430mn (-33% YoY and 194% QoQ) largely in line with U-Capital estimate of SAR 466mn. This significant QoQ growth is due to reduction in service expenses for 4Q23 as compared to 3Q23. For FY23, Insurance service results stood at SAR 1,198mn reflecting a 30% YoY growth driven by an increase of insurance revenues supported by a better management of claims leading to reduction in incurred claims.

 

Net income decreases significantly in 4Q23, below Bloomberg consensus

The company’s net income for the quarter stood at SAR 90mn (-62% YoY and -56% QoQ), below Bloomberg consensus of SAR 195mn. Tawuniya has restated its financials in accordance with IFRS 9 & 17 standards, leading to significant changes in the presentation of financial results, including restating comparative periods under the new standards and the lack of availability of restated financials for 4Q22 contributed to the deviation. For FY23, net income amounted to SAR 616mn, reflecting a growth of 104% YoY. This growth can be attributed to the improvement in insurance service results, along with increased investment income driven by higher interest rates and consistent fixed income returns throughout the FY23.

 

Target Price Under Review

Tawuniya achieved impressive FY23 results, exhibiting a remarkable 104% YoY net income growth. We assigned Accumulate rating to Tawuniya with a target price of SAR 133.24 on 16th November. Since then, the stock has appreciated by 37%, ahead of our target price of SAR 133.24. We maintain Accumulate rating on the stock and put the target price Under Review.

 

Valuation

Tawuniya is trading at 2024e P/E of 23.3x compared to the historical average 1-year forward P/E of 25.2x. Additionally, the stock is valued at P/BV multiple of 6.3x, based on the FY24 estimate, compared to the historical average of 4.5x.