Tune Protect saw a better performance in 4Q18 whereby net profit rose 29.3% yoy and 18.2% qoq and pushing 2018 net profit to RM49.3m (+6.5% yoy). The results were in-line with Affin’s and consensus estimate. Though underwriting profits for 2018 was affected by lower net earned premium and higher management expense, we are of the view that 2019 will be a more favourable year supported by strategic initiatives i.e. the Dynamic Pricing 2.0, ASEAN partnerships, Insurtech capabilities and motor insurance products, of which will be further enhanced and expanded. Maintain BUY, Price Target fine-tuned to RM1.10 (based on a 1.47x P/BV multiple on CY19E EPS).

A Marginally Better 2018; 4Q18 Profits Recovered Qoq

Tune Protect’s saw a marginally better year in 2018 earnings, as net profit grew by 6.5% yoy to RM49.3m, while normalized net profit was up 16.1% yoy. 4Q18 saw Tune Protect undertaking a VSS exercise, which cost the group RM3.7m. Although the overall 2018 net claims incurred saw improvement of 28.2% yoy (2018 net claim ratio down to 34.2% from 43.8% in 2017), the group was impacted by higher management expenses, especially in 3Q18 and 4Q18 (due to VSS cost, higher salaries, provision for receivables and administrative costs), resulting in a dip in 2018 underwriting profits by 10% yoy. On a qoq basis, net profit was up 18.2% largely due to a tax exemption on investment income, though PBT was down 18% qoq.

No Change in Earnings Forecasts. Remain Optimistic on New Initiatives

We are maintaining our 2019E-20E earnings forecasts and introducing 2021E as well. We remain upbeat on Tune’s FY19-21E earnings outlook, driven by i) roll-out of new initiatives through forging of new partnerships in Indonesia and Vietnam (for travel insurance and Retakaful; introduction of retail insurance and on-demand products), ii) further enhance its Dynamic Pricing 2.0 initiative; iii) official launching of pay-as-you-drive motor insurance; and iv) more innovative insurance products.

Reiterate BUY, With Marginal PT Adjustment From RM1.05 to RM1.10

Reiterate BUY. We believe that earnings downside risks remain low given Tune’s promising expansion endeavours. Given some housekeeping adjustments, our Price Target has been fine-tuned from RM1.05 (P/BV target of 1.3x CY19E BVPS) to RM1.10 based on a 1.47x P/BV target (on 2019E ROE of 12.1% and BVPS of RM0.76). Key downside risks - decline in its travel insurance segment, price competition, and spike in claims.

Source: Affin Hwang Research - 25 Feb 2019