INVESTMENT HIGHLIGHTS

• Management’s optimism remains, as new initiatives have started to materialise

• New strategy is in tandem with management’s digitalisation focus

• Marginal growth from travel insurance segment is expected

• We maintain BUY with adjusted TP of RM1.47

New key strategies to better align with digitalization initiatives. We made a visit to Tune Protect yesterday to learn about recent developments in the company. Management highlighted on some key strategic plans moving forward which are; 1) to lead in product innovation & differentiation, 2) widen distribution channel & expand reach, 3) deliver exceptional customer experience. This is to mitigate the slump in earnings last year from negative impact of regulatory changes to the travel insurance segment.

Pursuant to announcement made in last quarter, we are comforted with the recent developments of new innovative product that is expected to drive the growth in earnings from travel insurance segment. With the introduction of product bundling and dynamic pricing, the management indicated its optimism to see the growth to trend up at a single digit (circa +6.0%) in the 2HFY17.

Digitalization programme is well underway, with key segments to be transformed in stages. Accordingly, the progress from the said initiatives has shown encouraging results.

Stiffer competition. However, the motor de-tarriffication may be the beginnings of stiffer competition among insurers. Nevertheless, we opine that the impact will be moderated by Bank Negara’s premium band policy. The policy requires insurers to send in their application for any pricing changes of more or less than 10% of the market rate. The implementation of such policy is a precautionary measure by Bank Negara to discourage any extreme pricing regime by insurers which might jeopardize the market stability.

Cautiously optimistic. We expect earnings for this year’s remaining quarters to gradually improve from its performance in 1QFY17, given that some of the plans are already underway. However, we expect that the full effect of the improvements will not be fully realised in the near future. Hence, we are revising downwards our FY17/18 net profit estimates by 21.8% and 15.2% as we factor in lower premium from travel insurance stemming from MAVCOM’s opt-in ruling and a higher estimate for combined ratio in motor insurance. Despite this, we are confident that the premium contribution will rebound in FY18 albeit marginally.

Recommendation. Despite our downwards revision in earnings, we are maintaining our BUY call on Tune Protect Group. This is premised on our optimism of Tune Protect sustaining its growth going forwards due to expected increase in air travellers and its dynamic pricing as compared to the market which would allow the Group to recover from regulatory changes such as MAVCOM’s opt-in ruling. As a result of our earnings revision, we are adjusting our TP to RM1.47 from RM2.18 previously. This is based on pegging its FY18 EPS to PER of 14x which is 1 standard deviation above its 5-year historical average.

Source: MIDF Research - 14 Jul 2017