• Tune’s FY16 earnings of RM80.0m (+16%yoy) were in line with ours but below consensus expectations

• Its 4QFY16 earnings of RM18.0 (-23%yoy) were lower against 4QFY15 due to the decrease in net earned premium for travel business and higher management expenses

• We retain our FY17 forecast numbers at this juncture

• Hence we maintain our BUY recommendation with an unchanged TP of RM2.18

FY16 earnings met our estimates. Cumulative earnings of RM80.0m in FY16 were higher by +16%yoy. The growth was supported by its strong net earned premium for general insurance (+16.1%yoy) coupled with increase in share of MMIP profit and from overseas ventures and improvement in underwriting profit although it was partially offset by higher management expenses of RM107.1 (30%yoy). Overall, the results were within ours but below consensus expectation, which accounted a respective 95% and 86% of full year forecasts.

Lower 4QFY16 earnings were expected. Tune’s 4QFY16 earnings of RM18.0m were also higher by +25% against previous quarter of RM14.3m. This was supported by the growth in net earned premium for general insurance of RM55.8m (+8.3%yoy). However, the quarter earnings were lower by -23% against corresponding period last year of RM23.5m. The decline was not a surprised as it was the travel business that led the earnings lower following reduced in gross written premium recorded of RM27.2m. This resulted from the switch to Opt-In function imposed by MAVCOM (announced in July 2016) for additional airline services that impacted 4QFY16’s travel insurance take up rate. The drop in quarter earnings were also exacerbated by higher management expenses that led to significant increase in combined ratio to 95% (20pp yoy and 3.7pp yoy).

Impact on earnings. As the results came in line with our expectation, we retain our FY17 forecast at this juncture. We expect travel insurance take-up rate for AirAsia airlines to recover on the back of its impending new initiatives and on-going strategy to be implemented this year.

Recommendation. We maintain our BUY stance with an unchanged TP of RM2.18 based on FY17 sum-of-parts valuation. Our positive is on the back of the Group has (1) a first mover’s advantage of digital insurance and digital remarketing (2) dominant market share in local travel insurance with dynamic pricing on travel products, (3) various ongoing initiatives for product innovation, customer oriented and channel, and (4) undemanding valuation of PBV and PER of 2.7x and 16.9x.

Source: MIDF Research - 24 Feb 2017