Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Fri, 17 Jan 2020, 8:43 AM


Tune Protect - 3Q19 Results Not Any Better, But Still Hopeful

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Tune Protect saw a 2.0% yoy decline in 9M19 core net profit, which came in at RM37.7m, as the 3Q19 results did not get any better (core net profit declined 18.8% qoq and 4.8% yoy). The earnings were below our and consensus estimates due to weak topline (premium) growth as the group undertook a restructuring to reduce exposure to the motor portfolio while seeing lower growth in travel insurance policies (due to a change in AirAsia’s webpage layout). On a positive note, we saw net claims ratio stabilizing at 36.6% in 9M19 against 36.2% in 9M18, subsequent to its portfolio restructuring initiative. In line with our less optimistic outlook on the insurance sector in Malaysia, we cut our earnings forecasts for 2019-22 by 23-36%. We downgrade the stock to a HOLD (from BUY), with a revised Price Target of RM0.55.

Higher Disposal Gains on Investments and Property Drive 9M19 Profits

Tune reported a 9M19 headline net profit of RM40m (+3.9% yoy), though on a normalized basis, net profit declined by 2% yoy to RM37.7m (ex-disposal gain of RM2.3m on a property recognized in 3Q19). Tune saw an underwriting loss of RM1.3m in 3Q19, but this has narrowed from a RM5.4m loss in 2Q19. Altogether, Tune’s 9M19 underwriting profit declined by 72.7% yoy as the group net earned premium declined by 13.8% yoy on the back of: i) reduced exposure to the motor segment (which was a conscious move to lower its claims); and ii) the negative impact on travel insurance policy sales due to a change in AirAsia’s webpage layout.

Earnings Forecast Cuts of 23%/35.8%/35.2% for 2019/20/21

As we revise down our gross written premium (GWP) growth assumptions to -12.3%, -3% and +3% for 2019E-21E, we lower our earnings forecasts by 23%/35.8%/35.2% respectively. Our assumptions on the net claims ratios and management expense ratios are unchanged at circa 36-37% and 42- 45% respectively.

Downgrade to HOLD (from BUY), With Revised TP of RM0.55

We lower our 12-month target price from RM1.10 (at a FY20E P/BV multiple of 1.36x) to RM0.55 (at a FY20E P/BV multiple of 0.7x), and downgrade our rating from BUY to HOLD. Upside risks: i) better-than-expected expansion in Indonesia, Vietnam and Thailand; ii) optimisation of the Dynamic Pricing 2.0 initiative; and iii) the launch of more innovative insurance products. Key downside risk: further weakness in the GWP.

Source: Affin Hwang Research - 22 Nov 2019

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