• We maintain our HOLD call on Tune Protect Group (TPG) with an unchanged fair value of RM0.69/share based on FY19 ROE of 10.2% leading to a P/BV of 0.9x. Our earnings estimates are unchanged.

• Management held an analyst meeting to reiterate their key business strategies moving forward and to provide updates on the group.

• AirAsia (AA) still accounts for a large portion at 83% of the group’s GWP for travel insurance while the non-AirAsia (NAA) segment accounts for 17%. Out of the total travel insurance through AA’s flights, circa 94% has been sold digitally with offline channels contributed the remaining 6.0%.

• Management sees opportunities for growth in travel premiums from the NAA segment. On international markets for the travel insurance business, the group is focused on Indonesia, Indochina and the Middle East. In Indonesia, the group has partnered PT Asuransi Buana Independent (ABI), a local underwriter in Indonesia. ABI will first underwrite the travel insurance in Indonesia before ceding 70% of the risk/premiums to Tune Protect as reinsurer. The two will cooperate on travel insurance to target sales from members of the Association of the Indonesian Tours and Travel Agencies (East Java). We understand that the association has more than 700 travel agents. The immediate market for this collaboration will be Surabaya before moving onto Jakarta and Bali. In the first year, the alliance targets to achieve US$350,000 of travel insurance premiums. Meanwhile, its partnership with a Vietnamese insurer for travel insurance will be commencing operations soon.

• Dynamic pricing 2.0 for travel insurance has gone live in 5 markets, Indonesia, Singapore, Thailand, Malaysia and China. As the implementation of this initiative is still in the early stage, its topline contribution is still opaque for now. The group expects it to be 4% accretive to its revenue in the first year after implementation.

• The group expects higher sales for travel insurance from its offline channels, mainly through tie-ups with travel agents. While there is room for growth in offline sales, online channels will still dominate in terms of the sales of travel insurance. This will be in line with the group’s aspiration to be the leading digital insurer.

• On the general insurance business, the group will be focusing on growing the nonmotor and retail insurance such as fire, PA and foreign workers’ insurance. As at the end of FY18, motor contributed 41% while non-motor premiums constituted 49% of the group’s total GWP. For FY19 and FY20, the group plans to scale down the mix of motor premiums further to 30% and 20% respectively with non-motor premiums making up 70% and 80% of its GWP.

• In FY18, Tune Protect Malaysia (TPM) has increased its quota share for motor to 60:40. This was to mitigate against the high claims for motor insurance which is affecting the industry. For FY19, it targets a quota share of 50:50. This is anticipated to improve its commission income slightly.

• Recall that the income tax authority, LHDN, has raised RM11.1mil additional taxes and penalties on its subsidiary, TPM in Dec 2018. This was for the 2013–2015 assessment years. We understand that the dispute was on the tax treatment on provisions made for contractual liabilities as well as contributions made to MMIP (capital call). The group has yet to make any provisions for this. It will be contesting the additional taxes and penalties through court proceedings. The first court hearing will be in May 2019.

• TPM is also taking legal action to recover from a reinsurer which has failed to remit its share of payment for claims paid. The amount owing by the reinsurer was RM6.27mil of which RM4.73mil has been impaired. This case has been fixed for mention on 27 May 2019.

• The group has been active in coming up with new initiatives after the impact of Mavcom ruling in 2H2016 on its travel insurance business. In our opinion, the visibility of any earnings accretion from the group’s recent tie-ups is still lacking. This is particularly on its recent partnership with ABI which is targeting to tap on the offline sales channels, mainly travel agents in Indonesia to grow the travel premiums. We believe that the utilization of offline sales channels will require payment of commissions to the agents. Hence, with commission expenses, underwriting margins are likely to be lower compared to sales generated fully through digital channels. Besides, the contributions to its travel insurance premiums from the earlier tie ups with Wataniya Airways and Cambodia Angkor Air have been minimal.

• Not much guidance has been given on the group’s management expense and claims ratio. On the positive side, dividend payout has been more than 40% on average in the past. The group is likely to announce its dividend policy soon after obtaining clearance from the authorities.

Source: AmInvest Research - 18 Apr 2019