Investment Highlights

• We maintain our HOLD call on Tune Protect Group (TPG) with a revised fair value of RM0.72/share from RM0.69/share after rolling over to FY20. The revised FV is based on an FY20 ROE of 10.1% leading to a P/BV of 0.9x.

• TPG reported a higher core earnings (PATAMI) of RM18mil (+10.7% YoY) in 1QFY19 largely due to higher fair value gains and lower net claims. 1QFY19 earnings were slightly ahead of expectations making up 32.1% of our and 30.3% of consensus estimates. The group’s net profit in 1QFY19 benefitted from a RM4.5mil reversal in impairments due to better collection for its subsidiary, Tune Protect Re (TPR). In view of the fact that such large quantum of impairment reversal is not expected to recur in the subsequent quarters, we are keeping our estimates unchanged.

• GWP for the group fell by 31.3% YoY to RM117.7mil in 1QFY19 due to its subsidiary, Tune Protect Malaysia (general insurer), rebalancing its portfolio to focus on non-motor business.

• TPR which operates the travel insurance business, recorded a higher net profit by 4.2% YoY to RM12.5mil in 1QFY19 contributed by the aforementioned reversal of impairments. Also, the subsidiary reported a lower GWP and NEP of 20.7% YoY and 13.2% YoY respectively. Underlying GWP and NEP from AirAsia’s segment slid by 9.3% YoY and 2.4% YoY in 1QFY19. This was contributed by the higher retention ratio from 20.0% to 50.0% of the Malaysia market travel premiums by TPM. Also, the decline was due to the changes in its webpage layout which impacted AirAsia passengers’ purchasing behaviour for travel insurance. Management is hopeful that its Dynamic Pricing phase 2.0 will arrest the decline in premiums from the AirAsia segment.

• We understand that on the new phase of dynamic pricing, an incremental revenue of 21.0% was achieved in March 2019 for three markets in Thailand, Singapore and Indonesia. Thus far, dynamic pricing phase 2.0 has been implemented in 4 markets — Thailand, Singapore, Indonesia and Malaysia. The sustainability of this revenue is still uncertain as the group is still in the early stages of implementation.

• Combined ratio for TPR improved to 50.1% in 1QFY19 from 57.8% in 1QFY18 due to the reversal of impairment losses of RM4.5mil and lower commissions paid.

Source: AmInvest Research - 29 May 2019