KUALA LUMPUR (Aug 3): MIDF Research has upgraded Tune Protect Group Bhd to “neutral'' at 27.5 sen, and said its share price had dropped to a level closer to the research house's target price (TP).

“Following a sharp 20% share price deterioration in the past month, Tune Protect is now trading at close to our target price. 

"We raise Tune Protect to 'neutral' from 'sell', with an unchanged target price of 25 sen, pegged at seven times FY21F (forecast financial year ending Dec 31, 2021) earnings — at 1SD (standard deviation) below its two-year historical average PER (price-earnings ratio),” according to the research house's note released today. 

On another matter, MIDF Research said Tune Protect had indicated that the downtrend in the travel segment bottomed out in April and saw a moderate recovery in the following months after the gradual opening up of the economy and uplifting of restrictions on domestic travel.

It added that AirAsia resumed operations on a staggered basis in June and is seeing a gradual increase in passenger seat bookings, though gross written premiums (GWPs) for the travel business are still significantly lower than pre-pandemic levels.  

Also, the group has embarked on a cost-cutting exercise, which has seen Tune Protect Malaysia’s combined ratio reduced by 28%. 

“This was mainly driven by lower management expenses (-31% year-on-year or y-o-y) as a result of reduced staff-related cost, reduced marketing expenses as the group re-prioritised marketing spend to campaign-specific targeted marketing, as well as enhanced receivables management. Of the measures, the reduction in marketing expenses accounted for the bulk (52%) of cost reduction in 2QFY20 (second quarter ended June 30, 2020),” it noted.

On Tune Protect’s latest results, MIDF Research said the group reported RM10 million core earnings for the first half ended June 30, 2020 (1HFY20), which were deemed to be within estimates — accounting for 54% and 49% of the research house's and consensus FY20 estimates respectively.

Last Thursday, Tune Protect saw its net profit for 2QFY20 increased 17.6% to RM12.6 million, from RM10.71 million a year earlier, despite a lower revenue amid the Covid-19 pandemic. Revenue for the quarter fell 18.9% to RM100.94 million from RM124.46 million for the year-ago second quarter.

GWPs fell 18.6% y-o-y to RM101.9 million, said Tune Protect.

The group attributed the improvement in its profit to Tune Protect Malaysia, which saw lower net claims and management expenses, as well as an increase in unrealised investment gains.

Meanwhile, the lower GWPs and revenue for the quarter were due to the Covid-19 pandemic, which affected the travel business, the group said.

Tune Protect rose four sen or 14.55% to 31.5 sen this morning after some 5.77 million shares were traded. Year to date, the stock has declined some 45% from 57 sen on Dec 31, 2019.