WHAT’S NEW

Tune Protect Group (Tune) announced that its wholly-owned subsidiary, Tune Direct Ltd had on 7 June executed a Subscription and Shareholders Agreement to subscribe for 9.99% equity interest in Laka Ltd, at a cash consideration of an aggregate subscription price of RM2.6m.

COMMENT

• About Laka Ltd. Laka Ltd was incorporated on 20 Jan 17 and registered in England and Wales. It was founded by Tobias Taupitz, Jens Hartwig and Ben Allen. As an insurtech, Laka Ltd offers non-conventional peer-to-peer protection. It operates on a pooled payment system and its platform allows consumers to join as members without having to make upfront payments. Instead, monthly claims are settled as part of a group risk pool plus a fee. We understand that this is a new business model with no established examples of companies succeeding in replicating this niche insurtech business model of peer-to-peer protection.
• Collaboration may have been a better option. Laka is a small niche insurtech company based in UK and remains loss making, having only recently graduated from a sandbox in UK. Tune’s strategic rationale for the smallish investment was to widen its distribution network and to enhance its digital collaboration to raise its technical expertise. As Laka is a small niche player without a strong track record, we believe that a better option would have been for Tune to potentially form a partnership via business collaboration rather than taking a strategic stake Laka. Even if Tune were to replicate the business model in Malaysia, it will require a long gestation period to reap any positive results. That said, the downside risk is mitigated by the smallish investment sum of RM2.6m while management had alluded that it is unlikely to raise its stake beyond 9.99% level in the near to medium term.
• Maintain HOLD with unchanged Gordon Growth-derived target price of RM0.85 (1.16x FY18F P/B, 10.5% ROE, implied 11.0x FY18F PER). Earnings volatility could persist as management was not able to provide any form of guidance on the sustainability of 1Q18’s improved claims and management expense experience, which historically has been volatile.

Source: UOB Kay Hian Research - 8 Jun 2018