Tune Protect’s 1Q18 net profit of RM16.6m (+38.8% yoy, +98.4% qoq) was within expectations. The favourable results were underpinned by a recovery in the digital global travel business while overall underwriting profit of the group improved in-line with lower net claims and better collection of receivables. New capacity addition at AirAsia and new tieups (Wataniya Airways, Retakaful travel, FOMEMA and P2P Insurtech) may potentially bring in new avenues for growth. We upgrade Tune to a BUY (from HOLD) on an adjusted Price Target of RM1.00 from RM0.99 as we roll-forward our valuation horizon to CY19E.

Favourable 1Q18 Net Profit on Topline Growth and Lower Claims

Tune Protect saw a recovery in 1Q18 net profit, rising 38.8% yoy and 98.4% qoq to RM16.6m on the back of improved underwriting profit (+51.7% yoy; >100% qoq) as topline continued to grow driven by both digital air travel (policies earned grew 72.9% yoy in 1Q18; take-up rate at circa 15%) and the general insurance segments as well as lower net claims and management expenses (1Q18 combined ratio 80.8% vs. 87.9% in 1Q17). Although 1Q18 earnings accounted for 29% of our 2018E forecast, we deem 1Q18 earnings to be within our expectations as the favourable claims experience (due to prior years claims development and closure of time-barred claims on inward treaties) may not necessarily be recurring in nature. On a more positive note, we remain upbeat on Tune’s outlook in 2018E and going forward on the back of new business tie-ups such as with Wataniya Airways (Kuwaitbased low cost carrier), retakaful travel with Bahrain (commencing 2Q18) and four other Middle-East markets (commencing 3Q18), FOMEMA’s online portal digital insurer and investment in a P2P Insurtech company (of which may potentially introduce a new customer experience to the industry).

Maintain FY18-20E Forecasts. Upgrade to BUY, PT Adjusted to RM1.00

At this juncture, we maintain our FY18-20E forecasts, as we believe that earnings downside risks remains low given Tune’s initiatives to boost the digital global travel insurance segment coupled with moves to address the weak motor insurance business. We upgrade Tune to a BUY (from HOLD) as we adjust our Price Target marginally from RM0.99 to RM1.00 (based on a P/BV target of 1.35x CY19E) as we roll-forward our valuation horizon to CY19E. Key downside risks include a sustained decline in its travel insurance segment and sticky motor claims ratio.

Source: Affin Hwang Research - 28 May 2018