INVESTMENT HIGHLIGHTS

• Tune’s 9MFY17 PATAMI came in at RM37.7m (-40.6%yoy)

• Cumulative earnings were dragged down by previous quarters’ lacklustre performance

• However, there were glimpse of an earnings recovery as 3QFY17 earnings decline were lower than previous 2 quarters

• Expect better 4QFY17

• Maintain BUY with adjusted TP of RM1.42

Lower cumulative PATAMI. Tune Protect recorded 9MFY17’s PATAMI of RM37.7m, staging a decline of -40.6% yoy. The earnings accounted for 56.0% and 58.0% of ours and consensus FY17 full year estimates respectively, which is below our expectation. However, the result was not too much of a surprise given the challenging business environment in previous quarters.

Earnings slump in 1HFY17... The group saw a challenging 1HFY17, shown by its lacklustre performance of its major business segment, travel insurance. This segment was distinctly impacted due to the MAVCOM’s opt-in ruling introduced late last year, which has result a decline in travel insurance take-up rate. Consequently, numerous initiatives were introduced as ways to reinvigorate earnings performance. The initiatives include product bundling and dynamic pricing. Notably, the launch of product bundling has yielded better results with RM2.1m contribution to GWP.

…but efforts to boost earnings starting to show. We note that there was an improvement to the group’s 3QFY17 earnings as the sequential year rate of decline decelerated. It fell -11.5%yoy to RM12.7m vs. -54.6% yoy drop in 2QFY17. We believe that this could be a glimpse of an earnings recovery. The improved 3QFY17 earnings was partly attributable to the increase in combined ratio of +2.6ppts yoy to 94.0%, driven by higher net claims (+3.1ppts yoy) and management expenses (+3.4ppts yoy) ratio. Notably, the market for Global Travel Insurance saw an improvement in Thailand with higher PAT, which has helped to cushion the downward pressure on earnings.

Recovery gathering pace. The group will continue its efforts to grow earnings sustainably with multiple initiatives underway. We view positively the group’s effort to expand its reach with possibly new offerings such as usage-based motor insurance and on-demand insurance. However, at this juncture we could not account the earnings contribution from these new initiatives due to the lack of details such as the launch date and expected expenses.

Impact on earnings. Given that the earnings were slightly lower than our estimates, we adjust our earnings forecast slightly downwards by -3.6% and -3.3% for FY17 and FY18 respectively. This is to account for possibly higher expenses coming from the numerous initiatives being carried out to revive earnings, which would translate to higher combined ratio.

Valuation. All in, we believe that the group is able to see growth in earnings towards the end of the year considering that its recovery is underway. Additionally, we expect 4QFY17 to be seasonally stronger due to school-break holiday where most holiday-goers would travel. We opine this will contribute to better take-up rate for travel insurance. Thus, we maintain our BUY call on Tune Protect with an adjusted TP of RM1.42 (from RM1.47), pegging it FY18EPS to PER of 14x. We adjust our TP due to the revision to our FY18 earnings.

Source: MIDF Research - 22 Nov 2017