Investors who bought into Syarikat Takaful Malaysia Bhd just over three years ago would have little reason to complain. Based on capital appreciation alone, these investors would have seen its share price almost doubling to RM4.15  from RM2.08 between April 1, 2014, and June 30, 2017 — the period under The Edge Billion Ringgit Club review. That translates into an annualised total return of 23.6% over the three-year plus three months period.

To some extent, the gain is likely due to its one-for-five share split in 2015, which brought the share price of STMB — the country’s only listed Islamic insurer — into a more affordable range for retail investors. Prior to the corporate action, it was trading at around RM11 apiece.

Investors would have also been rewarded with a strong and consistent return on equity of just over 24% in each year from FY2014 to FY2016. This is higher than that of most financial institutions in Malaysia.

Its profit before tax and zakat has grown steadily over the years, to RM220.6 million in FY2016 from RM186.3 million in FY2014. Net earnings, meanwhile, rose to RM176.3 million in FY2016 from RM139 million or 8.2% three-year compound annual growth rate.

STMB has been generous with its dividends, with a payout ratio of 88% in FY2014, which then fell to a low of 40% in FY2015 before recovering to 55% in FY2016. Total net dividends amounted to RM59.9 million in FY2016 compared with RM130.3 million in FY2014.

The lower payout ratio may have been because it was taking a more cautious view on the capital impact of its upcoming licence split. The group in December last year submitted to Bank Negara Malaysia its final plans to split its family and general takaful businesses under separate licences to comply with the requirement under the Islamic Financial Services Act 2013 by Jan 1, 2018. The central bank approved its plans this month.

Given that STMB continues to maintain strong capital ratios, analysts see upside to its dividend payouts.

“If the dividend payout ratio were to revert to the historical average of 70%, yields would rise to 4.6%, by far the highest among peers. Among listed insurance companies, LPI Capital Bhd currently commands the highest dividend yield of 3.7% based on a 75% payout ratio,” UOB Kay Hian Research notes in a July 21 report following the release of STMB’s second quarter financial results.

The group is also seen as a net beneficiary of a rising interest rate environment, with life insurance contributing a sizeable 74% of assets and liabilities.

At the time of writing, Bloomberg data shows that four of five analysts that track the stock have a “buy” call on it, including UOB Kay Hian, with a 12-month target price of RM4.58. This suggests a 12.8% upside from its closing price of RM4.06 on July 31.

STMB is expected to continue benefiting from the vastly untapped takaful market at home. The group expects to maintain its position as the market leader in the family takaful business. It plans to amplify its presence in the general takaful market by continuing with its unique proposition of rewarding customers with 15% cashback for no claims during the coverage period.

“Given the continuation of this cashback campaign, we are optimistic that the group will be able to sustain growth of its motor insurance segment. In addition, we note that other insurance companies are scaling back on this segment, which we believe would leave room for the group to expand its market share,” says MIDF Research.

For the first half of FY2017, STMB posted a healthy net profit growth of 10.4% to RM101.8 million, which was broadly in line with analysts’ expectations. The growth was fuelled mainly by its strong performance in the first quarter. Its overall gross premiums growth of 10.6% year on year in 1Q2017 moderated to 3.9% in 2Q2017.

Some analysts expect weaker earnings from STMB in the coming quarters, based on the company’s guidance for slower growth in family takaful premiums and additional costs from splitting its family and general takaful businesses into two entities.