Investment Highlights

• We maintain our HOLD call on Tune Protect Group (TPG) with a reduced fair value of RM0.48/share (previously RM0.62/share) based on an FY20 P/BV peg of 0.6x supported by a lower ROE of 8.8%. We trim our FY20 earnings by 2.0% to RM51.4mil after adjusting our forecast for gross earned premiums and raising our projection for net claims ratio.

• 4Q19 saw TPG recording a higher core earnings (PATAMI) of RM11mil (+18.3% QoQ) after stripping off a gain from the disposal of property net of tax of RM2mil in 3Q19.

• For 12M19, the group reported a core net profit of RM49mil (+7.2% YoY). Tune Protect Malaysia (TPM), general insurer posted a stronger normalized profit after a tax of RM32.1mil (+88.6% YoY) from lower net claims arising from an improved loss experience after the portfolio restructuring focusing on non-motor insurance and a lower management expenses (ME) from improved collections. Meanwhile, the share of profit from its overseas venture declined. It was impacted by the optin ruling by AirArabia, hence affecting the earnings of Tune Protect EMEIA. Meanwhile, its subsidiary, Tune Protect Re (TPR), which operates the travel insurance business, recorded a drop in profits due to the change in retention ratio on travel premiums between TPR and TPM.

• 12M19 normalized earnings of RM49mil were within expectations making up 96.1% of our while it was below street numbers accounting for only 88.6% of consensus estimates.

• Group GWP slipped by 10.6% YoY to RM463.9mil in FY19. This was due to TPM’s rebalancing of portfolio towards a lower mix of motor insurance as well as a slowdown in non-motor premiums for most segments except marine cargo and hull. GWP of TPR also fell largely from the lower travel premiums.

• TPR recorded a lower net profit after tax by 12.5% YoY to RM37.5mil in 4Q19 supported by lower management and net commission expenses. TPR’s 12M19 GWP and NEP dipped 18.8% YoY and 16.7% YoY to RM94.7mil and RM96.2mil respectively due to the increase in retention ratio from 20.0% to 50.0% of the Malaysian market travel premiums by TPM. Excluding the change in retention rate, GWP still shrank by 4.8% YoY largely due to decline in travel premiums for the AirAsia segment.

Source: AmInvest Research - 2 Mar 2020