INVESTMENT HIGHLIGHTS

• 1HFY19’s normalised net profit increased by +14.9%yoy to RM29.1m, in line with our and consensus expectation

• Claims ratio improved further due to continued focus on growing profitable portfolio

• Contribution with Bao Viet expect to kick-in by 4QFY19

• Maintain BUY with an unchanged TP of RM0.92

Profitability remains intact. Tune Protect Group Berhad (TPG)’s 1H19 normalised earnings grew by +14.9%yoy to RM29.1m. This came in within both our and consensus expectations, accounting for 43.5% and 47.4% of the full year FY19 earnings estimates respectively. The higher earnings were primarily attributable to lower claims as a result of portfolio restructuring at Tune Protect Malaysia (TPM) and higher contribution from its overseas venture.

Portfolio restructuring on track. Despite the group’s 1H19 gross written premiums (GWP) declined by -17.2%yoy to RM242.9m, it still managed to record an improvement in net claims ratio of -3.6ppts yoy to 34.6%. This signifies that the portfolio restructuring at TPM to focus on more profitable non-motor portfolio is bearing fruits, albeit at the expense of the top line. Note that 1H19’s GWP mix at TPM of nonmotor came in at 64%, well on track to hit 70% target at end 2019. As a result, the 1H19’s profit after tax of TPM has risen by +21.8%yoy to RM16.2m, contributing about 50% of the bottom line.

Continued focus on expanding its market. On a year-over-year basis, TPG’s earnings from overseas venture (i.e. TP EMEIA, TPT) have been showing consistent gains. This portion of the business has increased by +96.1%yoy to RM2.5m, partly contributing to the higher earnings in 1H19. In addition, the group is finalising its travel reinsurance deal in Vietnam with the country’s largest general insurer by 3Q19. We understand that this deal encompasses two sources of revenue which are the technology service fee income (by using TPG’s insurtech capabilities) and quota-share of the premium. Recall that the group has already ventured into Indonesia in 1H19.

Earnings forecast. We are maintaining our earnings forecast.

Target Price (TP). We are making no changes to our TP of RM0.92 which is derived by pegging its FY20EPS of 7.7sen to PER of 12x which is about the group’s 5-year historical average.

Maintain BUY. We remain optimistic on the group’s abilities to weather the tough operating environment in which the general industry’s GWP saw an overall contraction of -1.7%yoy in 1H19. This is premised on the group’s continued focus on restructuring exercises to take in more profitable businesses which has already been reflected through the change in GWP mix and increased profitability at TPM. Meanwhile, the expansion of the group’s B2B travel business seems to be on track as a deal with the Vietnam’s largest general insurer is expected to be finalised by 3Q19 after its foray into Indonesia in 1H19. This is underpinned by its insurtech solutions which act as a leverage in closing deals with foreign partners. Going forward, we are of the view that the group’s business portfolio abroad will gradually increase its contribution to both top and bottom line. This bodes well with the group’s plan to mitigate the domestic challenging environment and expanding its profitable travel reinsurance market beyond AirAsia and Malaysia. All factors considered, we maintaining our BUY call on TPG.

Source: MIDF Research - 22 Aug 2019