Riyadh – Mubasher: AlJazira Capital expected an increase in the net profits of Al-Rajhi Company for Cooperative Insurance (Al Rajhi Takaful) in 2017.

The research firm set the target price of Al Rajhi Takaful at SAR 39.9 per share, with a Neutral recommendation.

Al Rajhi Takaful has shown significant improvement in its markets hare backed by strong growth in its gross written premiums and profit margins. The company is currently trading at a profit earning ratio and price to book value of 22.0x and3.72x, respectively, the report said.

AlJazira Capital sees the share's profits to decline to SAR 19.1 in 2016 and SAR 2.29 in 2017.

The report showed that Al Rajhi Takaful has shown significant improvement in its market share, backed by strong growth in its gross written premiums, and consequently in its profit margins.

Moreover the company recorded 67.5% growth in net profit during the first nine months of 2016, on the back of substantial decline in expenses, the report said expecting the increase to reach 69% in 2016 and 85% in 2017.

AlJazira Capital pinpointed that the company's expense ratio decreased to 13.8% in the first nine months of 2016 from 19.3% during the same period in 2015, which resulted in an overall improvement in the combined ratio to 96.4% in 9M 2016 compared to average 106% historically.

The company's overall market share is likely to improve to 5% in 2016, where motor segment is expected to grow to11.8%.

"ARCCI is heavily dependent on the motor segment for its profitability. Although the company has increased its non-motor share considerably over the past five years, it still faces challenges in sustaining growth in other segments due to the high level of competition in the market," the report said.

The research firm sees that the government’s various austerity measures are expected to impact consumer spending on the short term, which will likely have adverse effect on auto sales and hence on ARCCI’s growth prospects.