Investment Highlights

• We maintain our HOLD call on Tune Protect Group (TPG) and lower our FV/share to RM0.68 from RM0.80. This is based on a PB of 0.9x (previously 1.0x) on FY19 ROE of 10.5%. The lower forward PB multiple is based on a slightly higher risk premium as earnings remain opaque. This is despite the various strategic tie-ups and digital initiatives of the group which we have yet to see significant contributions to its earnings.
  Our FY18/19/20 earnings have been revised by - 13.0%/+4.8%/+3.6%. This is after factoring in expenses for the recently completed voluntary separation scheme (VSS) of its 83.26%-owned Tune Insurance Malaysia Bhd (TIMB), which operates the general insurance business and the cost savings thereafter from the exercise.
• In line with its digital initiatives and plans, the VSS was undertaken as part of the group’s business transformation and restructuring.
• A total of 58 TIMB employees’ applications for VSS have been approved. This represents 15.0% of the subsidiary’s total permanent workforce of 387 employees. The completion of the VSS will see a remaining staff of 329 in TIMB.

• Employees whose applications have been accepted will be gradually released from employment commencing Dec 2018 till Feb 2019 to facilitate a smooth transition.

• A total of RM4mil will be paid out for the VSS. The entire expenses of RM4mil will be booked in 4QFY18. We anticipate this to increase TPG’s management expenses in the final quarter of FY18. We now project the group’s FY18’s management expense ratio to rise to 41.7% from our previous estimate of 39.0%, consequently raising its combined ratio to 94.7% for the financial year.

• It will take around 13 months to break even for the VSS payment.

• Cost savings will start to flow in FY19, and we estimate this to be a circa RM0.3mil/month (RM3.6mil/year) based on a breakeven period of 13 months. Barring any unexpected increase in expenses, the cost savings should translate into lower management ratio for FY19 and FY20 of 38.1% and 38.2% respectively (vs. 39.0% for both FYs previously).

• Recall, for 9MFY18, PAT of its the travel insurance business under Tune Protect Re fell 5.8%YoY owing to higher impairment on receivables, facilitator fees and marketing expenses. Meanwhile, TIMB’s PAT improved and grew 12.7%YoY in 9MFY18 supported by stronger underwriting performance from a favourable prior years’ claims development and closure of time-bared claims.

Source: AmInvest Research - 10 Dec 2018