KEY INVESTMENT HIGHLIGHTS

• 4QFY19’s normalised earnings fell -21.8%yoy to RM10.6m

• FY19’s normalised earnings of RM48.3 (+6.4%yoy) came in below both our and consensus expectation.

• Earnings to be negatively affected by its AirAsia segment business due to COVID-19 outbreak in the medium term

• Dividend yield remains a plus point at this juncture

• Downgrade to NEUTRAL with a revised target price of RM0.42

Below expectation. Tune Protect Group Berhad (TPG)’s 4QFY19 normalised earning decreased by -21.8%yoy to RM10.6m. Cumulatively, the group’s FY19 normalised earnings grew by +6.4%yoy to RM48.3m. However, this came in below both our and consensus expectations, accounting for 87.2% and 87.4% of the full year FY19 earnings estimates respectively. This was mainly due to lower-than-expected of both operating revenue and net earned premium (NEP).

Top-line on continued downtrend. On a cumulative basis, the group’s FY19 gross written premium (GWP) and operating revenue continue to decline by -10.6%yoy and -11.5%yoy to RM463.9m and RM500.8m respectively. This led to the group’s NEP to drop -12.6%yoy to RM469.3m which was contributed by the fall in NEP of both TPR (-16.7%yoy) and TPM -11.9%yoy. This was mainly attributable to the group’s portfolio restructuring at its general insurance arm, TPM, where it plans to gradually reduce the reliance on the high-premium pricing of motor portfolio towards more profitable lower-premium non-motor portfolio. Moving forward, we expect the topline to trend downward due to the potential business loss from the AirAsia segment in FY20.

Tapering underwriting profit. To recall, note that the trend of underwriting profit generally follows of that the combined ratio. Even though the net commission and management expenses have improved -5.8%yoy and -10.8%yoy to –RM40.0m and -RM120.1m respectively, it wasn’t sufficient to make up for the fall in NEP. As a result, the net commission ratio and management expenses ratio have deteriorated by - 1.3ppts yoy and -1.6ppts yoy to 15.7% and 47.2% respectively. On the contrary, the net claims ratio improved slightly -2.2ppts yoy to 32.3% as driven by the lower net claims of RM82.4m (-19.2%yoy). Ultimately, the group’s combined ratio worsened marginally by -0.7ppts yoy to 95.2% which has caused the underwriting profits to plunge -29.6%yoy to RM12.2m. Moreover, we expect the anticipated lower business activities from its most profitable travel insurance segment (i.e. AirAsia) to put downward pressure on its underwriting profit.

Source: MIDF Research - 2 Mar 2020