• Earnings below estimates

• Lower PAT in 2QFY17 attributable to higher claim cost in Motor and soft demand from travel insurance business

• Company’s initiatives showed solid progress

• Travel insurance business is expected to recover by the end of FY17

• Maintain BUY with unchanged TP of RM1.47

Earnings below estimates. The company recorded 6MFY17’s earnings at RM26.80m, which accounted for 35.4% and 37.7% of ours and consensus’ full year forecast respectively. However, we had expected 2QFY17 to be challenging. This led 1HFY17 earnings to decline by - 50.2%yoy. On quarterly basis, 2QFY17’s PAT declined by -54.6%yoy.

Higher claim cost in Motor. The drop in earnings was mainly driven by higher claim cost in motor segment. This led to the increase in company’s overall combined ratio of 94.7%, +23.5ppt higher than in 2QFY16. Travel insurance business continued its downtrend mainly due to the effect of MAVCOM’s opt-in ruling.

Positive growth in GWP. Despite the drop in earnings, 2QFY17’s GWP growth advanced +11.4%yoy, mainly driven by Motor, Offshore Oil & Engineering, and Travel from B2B in the Middle East Market. The overall take-up rate from Global Travel business segment trended marginally higher, +0.2ppt sequential increase to +9.9% in 2QFY17. Management expected the rate to reach 15.0% in 2HFY17, as it extended its product bundling to more markets starting in the 3QFY17.

Partnership with Cambodia Angkor Air. The company secured its 4th airline partnership with Cambodia Angkor Air. It is slated to commence in 3QFY17, and expected to contribute higher premium income to the company’s overall Global Travel business. Additionally, transformation initiatives are showing positive signs with few products already underway such as Tune Protect Motor Easy. Among other initiatives, the company is also expected to launch its mobile application, concentrating its focus on acquiring more customers in the mass retail space. We opine that the company’s early attempt to reach out to customers via the digital space will leave a positive impact, which we expect coming in FY19 earnings. We believe that it will provide sustainable growth to its long term earnings’ stream due to the benefits of first mover’s advantage.

Source: MIDF Research - 22 Aug 2017