Travel insurance seen to be Tune Protect’s earnings driver

TheEdge Fri, Jun 21, 2019 11:19am - 4 years View Original


Tune Protect Group Bhd
(June 20, 67 sen)
Initiate coverage with buy and a target price (TP) of 87 sen:
We initiate coverage of Tune Protect Group Bhd with a “buy” recommendation. We derive our TP of 87 sen based on calendar year 2020 (CY20) price-to-book (P/B) ratio of 1.1 times, representing a potential total return of 33.3% (including a 5.4% estimated dividend yield).

Tune Protect is principally involved in providing underwriting and reinsurance services for non-life insurance products. It has strong access to travel partnerships and AirAsia’s ecosystem, and focuses on digital and insurance technology to spur earnings growth, with a healthy balance sheet with attractive dividend yields.

We estimate that the group will record core profit growth of 5.1%, 11% and 12.6% to RM55.5 million, RM61.6 million and RM69.4 million for financial year 2019 (FY19), FY20 and FY21 respectively, supported by top-line growth and improved combined ratios. The general insurance segment is expected to remain the main premium generator for Tune Protect, although we estimate that the premium contribution from the motor segment will be lowered due to ongoing efforts to rebalance its insurance portfolio mix. In terms of earnings breakdown, travel insurance is expected to be the core earnings driver with contributions in excess of 80% of the group’s profit before tax.

Potential risks to our recommendation include dependence on AirAsia. About 80% of gross written premium contributions for its digital global business are derived from the airline. Hence, the group faces high concentration risk in the event of a slowdown in AirAsia’s business, with its earnings performance adversely affected.

Another risk is change in the regulatory environment. Given that the insurance industry is a highly regulated industry, any updates or changes to regulatory requirements may pose a serious threat to the group’s profitability.

At 1.1 times P/B ratio, Tune Protect would trade at a discount to more established insurers, such as LPI Capital Bhd. However, we believe Tune Protect deserves to trade at a premium to other non-life insurance peers, such as MPHB Capital Bhd and Pacific & Orient Bhd, due to absence of dividends for the former and a weaker earnings performance of the latter. We also believe taking the one-year historical average is reasonable given the changes in the political landscape post the 14th general election and changes in the regulatory environment after price liberalisation in the second half of FY17. — TA Securities, June 20

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