INVESTMENT HIGHLIGHTS

• The results came in below ours and consensus’ estimates

• Lower earnings against 1QFY16 is due to higher expenses in human capital and technology, and lower NEP from Digital Global Travel business

• Big tie up between Tune Protect and Air Asia is set to boost earnings in FY17

• We retain our FY17 forecast numbers at this juncture

• We maintain our BUY call with an unchanged TP of RM2.18

1QFY17 earnings came in below estimates. Tune Protect’s PATAMI of RM13.4mil registered a drop (-44.9%yoy) from 1QFY16’s. The results came in below ours and consensus’ expectations at 13.8% and 15.5% of respective full year estimates.

Lower earnings are due to higher expenses in human capital and technology, and lower NEP from Digital Global Travel business. The significant increase in expenses that was made by the group was mainly to support digital technologies and innovation. According to management, besides hiring a new head to spearhead the digital initiatives, a huge portion of its spending will be utilized for telematics development. The use of this technology will enable the group to come up with a dynamic pricing mechanism to offer more personalized premium for their customers. Beside higher expenses, the decline in earnings was also due to lower NEP (-7.0%yoy) from Digital Global Travel business, which was resulted from the change in regulatory landscape in the ASEAN market.

Big tie up between Tune Protect and Air Asia is set to boost earnings in FY17. According to management, Tune Protect will embark on a strategic collaboration with Air Asia on digital side which will act as a catalyst to drive their digital transformation program. We opine this development as a step in the right direction for Tune Protect to address the decline in its Global Travel Insurance business as well as to deliver further growth.

Impact on earnings. Although the results came in below our expectations, we believe that Tune Protect will be able to rebound in the coming quarters. This is premised on our expectation that travel insurance take-up rate for AirAsia airlines will recover due to the new initiatives and on-going strategy to be implemented this year.

Recommendation. Thus, 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’s (1) various ongoing initiatives for product innovation, customer oriented and channel, and (2) undemanding valuation of PBV and PER of 2.6x and 12.5x.

Source: MIDF Research - 23 May 2017