Investment Highlights

• We maintain our SELL call on Tune Protect Group (TPG) with a revised fair value of RM0.30/share from RM0.25/share based on FY21 P/BV of 0.4x (previously 0.3x), supported by an ROE of 5.6%. We ascribe a lower risk premium with modest improvement in its subsidiary Tune Protect Re’s (TPR) earnings, coupled with the group’s plans to gradually diversify from travel insurance and lower its reliance on AirAsia for travel premiums.

• Our FY20 net profit estimate has been lowered by 20.1% to reflect a lower net earned premium (NEP). We make no changes to our FY21 and FY22 earnings forecast.

• TPG reported a net profit (PATAMI) of RM2.3mil (-81.9% QoQ) in 3Q20. On a QoQ basis, the weaker earnings were contributed by lower fair value gains on investments of RM6.6mil, a drop in reinsurance commission income of commercial risk and higher management expenses (ME). ME were higher in 3Q20 compared to 2Q20 due the recognition of a RM1.4mil impairment for reinsurance recovery, a non-repeat of 2Q20’s reversal in provisions for personal expenses and additional marketing expenses allocated for the launch of its mobile application in Malaysia. It was also contributed by the share of losses from its associate (Tune Protect Thailand) due to weaker investment performance and the decline in share of JV (Tune Protect EMEIA) profits due to the timing difference in facilitators fees received.

• 3Q20 saw a lower reinsurance ratio of 56.8% to cede out the risk on non-motor insurance to reinsurers. This was due to the absence of the sizeable renewal of commercial risk which occurred in 2Q20.

• 9M20 core earnings of RM17.4mil slipped 54.3% YoY attributed to lower NEP and share of profits from its associates (Tune Protect Thailand) and JV (Tune Protect EMEIA). NEP was affected by lower non-motor insurance and travel PA insurance due to the Covid-19 pandemic.

• Cumulative earnings were below expectations, accounting for 52.7% and 66.2% of our and consensus estimate respectively. The variance to our expectation was largely due to lower premiums and higher management expenses.

Source: AmInvest Research - 23 Nov 2020