Tune Protect saw a 1.1% yoy drop in its 1H19 net profit to RM29.1m. Results were within our expectation and consensus estimates as we expect 2H19 to be better in the absence of non-recurring items, which were being recognized under its 1H19 management expenses. The group saw 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 (to reduce exposure to the motor segment). In our view, the outlook for Tune remains positive, supported by strategic initiatives such as the Dynamic Pricing 2.0, ASEAN partnerships and new Insurtech capabilities. Maintain BUY, with our PT unchanged at RM1.10 (based on a 2020E P/BV multiple target of 1.36x.

Lower Net Claims and Higher Investment Gains Drive a Better 1H19

Tune Protect reported a decent set of results, despite seeing a marginally 1H19 net profit decline of -1.1% yoy as the group was affected by a weaker 2Q19, which saw its net profit down 41.6% qoq and 16.4% yoy. As we expect the group to deliver better results in 2H19, we consider its 1H19 reported earnings to be within our and consensus estimates. Despite seeing a lower topline, as implied by a 12.7% yoy decline in 1H19 net-earned premium (NEP), its 1H19 pre-tax profit declined by a marginal 2.2% yoy aided by lower 1H19 net claims (-21% yoy) while the group also saw higher realized and mark-tomarket investment gains. Meanwhile, the weaker results in 2Q19 (net profit down 41.6% qoq) was largely affected by higher net claims (+30.7% qoq) and higher management expenses (due to impairments and salaries).

Innovations and transformation initiative likely to mitigate cautious 2H19

We remain upbeat on Tune Protect’s outlook 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).

Reiterate BUY, Maintaining PT of RM1.10

We believe that earnings downside risks remain low given Tune’s promising expansion endeavours. We reiterate our BUY call with an unchanged Price Target of RM1.10 based on a 1.36x P/BV CY20E BVPS. Key downside risks - decline in its travel insurance segment, price competition, and spike in claims.

Source: Affin Hwang Research - 22 Aug 2019