Al Rajhi Capital: Tawuniya results above expectations, these are our profit forecasts through 2027 and target price

The financial company revealed that Tawuniya Insurance’s profits of SAR 262 million in the first quarter of this year were better than its forecast of SAR 156 million. It expects profits to rise to SAR 1,121 million in 2025, reach SAR 1,206 million in 2026, and jump to SAR 1,377 million the following year, 2027.

Al Rajhi Capital recommended overweighting Cooperative Insurance’s shares with a target price of SAR 158 per share, stating, “Although we are increasing our earnings estimates for fiscal year 2025 and beyond compared to our previous forecasts, we are reducing the stock’s valuation multiple.” The slight pessimism is mainly due to weak stock market sentiment toward high-growth stocks, driven by the sharp decline in oil prices. From a fundamental perspective, while oil prices may not have hurt the growth prospects of the healthcare and automotive sectors, they could hurt the medium- to long-term growth outlook for the property and insurance sector.

Therefore, we value the company at a price-to-book value (P/B) of 4.25x, which is broadly in line with its historical multiple and a P/E of 21x. We modestly raise our target price to SAR 158 per share (previously SAR 155 per share), but change our recommendation to Overweight from Neutral because the recent decline in the share price is pricing in most of the negatives, in our view. At our target price of SAR 158 per share, the upside is approximately 14%, implying an Overweight recommendation for the stock.

Following a strong performance in fiscal year 2024, Tawuniya announced its results for the first quarter of 2025 this morning, which came in better than expected. The company stated that it expected insurance margins to return to normal compared to the first quarter of 2025, supported by relatively high profit margins in the property and casualty (P&C) segment. Furthermore, the increase in the number of corporate medical insurance customers in the first quarter of 2025 was also expected to impact margins.

However, insurance margins remained broadly stable compared to the same period last year, and thus revenue growth was reflected in net profit, resulting in a strong performance. The sharp growth in gross written premiums, led by two major wins in the medical insurance segment, underscores the company’s competitiveness and the economic advantage of its diverse business model, which can be offered as a comprehensive solution to customers.

According to the report, in 2025, it expects strong growth in medical insurance (thanks to large contracts), in addition to another year of sharp growth in property and casualty insurance. Meanwhile, continued growth in motor insurance volume and some rationalization in pricing are expected to lead to low double-digit growth in motor insurance.

However, given the sharp decline in oil prices, concerns have increased regarding the medium-term growth prospects for the property and casualty (P&C) sector, particularly construction contracts. She added, “However, gross written premiums are expected to grow by 21% year-on-year in 2025, and another 11% (average) in 2026 and 2027. However, insurance margins may decline slightly compared to 2024, primarily due to a return to normalization in P&C profit margins. In 2024, P&C risks were low (claims incurred were only 37% in FY2024, compared to an average of 60% in the previous two years). P&C margins are assumed to be somewhere between 10% last year and 5% (below normal) in FY2022 and FY2023.”

Furthermore, the expected growth in the number of corporate clients in the healthcare sector in 2025 and beyond could negatively impact insurance margins. However, the impact may be limited due to the Population Health Management (PHM) initiative, the launch of MENA Clinics (79,000 patient visits in fiscal year 2024), the Vitality program (1.1 million active users), and others. In the motor insurance sector, we assume slightly better profit margins as a result of price rationalization in recent months.

Based on these assumptions, insurance revenue growth is assumed at 20% in 2025, 12% in 2026, and approximately 10% in 2027. For insurance margins, we assume growth of approximately 5.6% during FY 2025-27, compared to a profit margin of 6.1% in FY 2024. For net profit margins, we assume profit margins of 5.0% during FY 2025-27, compared to 5.6% in FY 2024, due to higher operating expenses and lower investment income (weak equity markets and lower interest rates).