• We maintain our SELL call on Tune Protect Group (TPG) with an unchanged fair value of RM0.25/share based on FY21 P/BV of 0.3x, supported by a ROE of 5.6%. The outlook for the travel and general insurance business continues to be challenging due to the outbreak of Covid-19. With the second wave of the pandemic, most international borders for air travel remain closed, and this will impact the progress of recovery for travel insurance.

• Recall on 22 February 2017, Tune Protect’s general insurance subsidiary, Tune Insurance Malaysia Bhd (TIMB), received a notice from the Malaysia Competition Commission (MyCC) with a proposed preliminary decision which found TIMB and 21 other general insurance companies in Malaysia (all members of PIAM) infringing one of the prohibitions under the Competitions Act 2010 in Malaysia. The violation of the prohibition was due the agreement entered into between PIAM and the Federation of Automobile Workshop Owners' Association of Malaysia on trade discount rates and agreed labour rates for the PIAM Approved Repairer’s Scheme workshops.

• Initially, MyCC imposed a financial penalty of RM3.6mil on TIMB and a consolidated RM213.4mil on all 22 general insurance companies (members of PIAM). TIMB had earlier made written representations to MyCC to defend its position. However, there was no response from the authority until recently.

• On 25 September 2020, all 22 members of PIAM, including TIMB, received notices that they have infringed Section 4 of the Competition Act 2010. Through the latest notice, the fine on TIMB has been lowered to RM2.57mil while a reduced financial penalty totalling RM130.2mil has been imposed on all the 22 general insurance companies.

• MyCC has granted a moratorium period for the payment of the financial penalty until 24 March 2021. After the end of the moratorium, TIMB will be allowed to make 6 equal monthly instalments for the fine of RM2.57mil.

• The financial penalty will not have any impact on TPG’s FY20 profit. However, it will affect the group’s FY21 earnings should it fail in its legal appeal to set aside the fines. The financial penalty impact is estimated to be 7.6% of FY21’s net profit.

Source: AmInvest Research - 29 Sept 2020