TUNEPRO is a leader in digital insurance and a dominant player in the local travel insurance segment, riding on its sister company, Air Asia’s low cost carriers’ aggressive network expansion into new markets and strong passenger growth. It could serve as an alternative investment vehicle for investors who wish to participate in AirAsia’s strong growth story without exposures to jet fuel price and USD borrowings risks. After tumbling 20% from YTD high to RM0.615 after a poor 2Q19 results, valuations are cheap at 6.6x FY20 P/E and 0.87x P/B, which are 53% and 67% lower than its peers, supported by expectations of a better 2H19, superior FY20 dividend yield of 5.7% (71% higher than its peers) and stable 11.3% earnings CAGR for FY19-21. Technically, the stock is heading towards RM0.645-0.71 levels after staging a downtrend line breakout last Friday.

A leader in digital insurance. As a leading digital insurer in the region and with the tagline ‘Protection Made Easy’, Tune Protect offers affordable, yet comprehensive protection plans to suit individual and corporate needs. Tune Protect has established a strong foothold in the travel, retail and digital insurance space globally with presence across more than 45 countries through its own general insurance and reinsurance arms, as well as via strategic partnerships with local underwriters in these markets.

The Group also has a strong focus to move beyond insurance by embracing insurtech and introducing differentiated product solutions such as on-demand products as part of its diversified portfolio. The company offers a range of online insurance products, including travel, lifestyle protection, and guest personal accident insurance products.

In 1H19, the gross written premiums (GWP) mix was as follows: 1) Motor (36%), 2) Fire (19%), 3 Marine (19%), 4) Travel PA & PA (15%), 5) Medical (5%) and Others (6%).

A disappointing 2Q19… TUNEPRO share prices plunged 19.6% from YTD high of RM0.765 (9 July), mainly affected by a weaker 2Q19 (-41.6% QoQ) amid higher net claims (+30.7% QoQ) and higher management expenses (due to impairments and salaries). Nevertheless, the group managed to record an increase of 6.4% in gross written premium to RM125.2m, thanks to portfolio restructuring to reduce exposure to the motor (M) segments and increased focus on more profitable non-motor (NM) business (2Q19 M vs NM: 36%/66% vs 2Q18 M vs NM: 48%/52%).

....but anticipate a stronger 2H19. In 1H19, GWP slipped 17.2% YoY to RM242.9m, mainly due to the business portfolio restructuring exercise to more profitable non motor segments (1H19 M/NM: 36%/64%; 1H18 M/NM: 38%/62%), in line with the preferred portfolio mix of Motor (30%) and Non-motor (70%).

Despite lower GWP, 1H19 core net profit (excluding the RM4.1m inward treaty reserve release in 6M18) jumped 14.9% to RM29.1m, mainly attributed to an overall fall in its net claims ratio from 38.3% in 1H18 to 34.6% in 1H19, which was a positive attribute related to its portfolio restructuring initiative, as well as higher contribution from its overseas venture coupled with hhigher realized and mark-to-market investment gains.

Overall, consensus expect a better 2H19 due to: (i) on-going expansion in Indonesia, Vietnam and Thailand; (ii) optimisation of the Dynamic Pricing 2.0 initiative and its launch on Malaysian shores (3% of AirAsia’s 2Q19 GWP contribution); (iii) lower claims and normalization in management expenses ratios; (iv) monetizing its Insurtech platform and (v) more innovative insurance products (pay-as-you-drive, foreign worker personal accident).

Cheap valuations. Currently, the stock is trading at 6.6x FY20 P/E and 0.87x P/B, which are 53% and 67% lower than its peers, supported by superior yields of 5.7% (71% higher than its peers) and stable 11.3% earnings CAGR for FY19-21.

Ripe for further rebound. After hitting YTD high at RM0.765, TUNEPRO tumbled 22.9% to a low of RM0.59 (29 Aug) before staging a 4.2% technical reobund to end at RM0.615 last Friday, closing a tad above the downtrend line of RM0.61. In our view, the stock is at the tail end of the downtrend and augurs well for further recovery, supported by bottoming up technical indicators. Further upside targets are RM0.645 (50% FR) and RM0.66 (200D SMA) before reaching our LT objective at RM0.71 (23.6% FR or end June’s book value/share). Key supports are RM0.60 psychological level and RM0.59. Cut loss at RM0.58.

Source: Hong Leong Investment Bank Research - 10 Sept 2019