KEY INVESTMENT HIGHLIGHTS

• 2Q20 core earnings within estimates.
• Operating revenue fell 19%yoy as a result of restrictions on domestic and international travel
• Domestic travel restrictions had since been lifted; moderate recovery seen, though restrictions on international travel and Covid19 impact on travel demand still a potential drag.
• Upgrade to NEUTRAL from SELL at unchanged TP of RM0.25 after a 20% share price deterioration in past month.

1H20 results within estimates. Tune Protect Group Berhad (TPG)’s 2QFY20 normalised earnings decreased by 87%yoy to RM1.4m, which brought 1H20 core earnings to RM10m. The 1H20 core earnings is in line with our estimates and consensus accounting for 54% and 49% of FY20F respectively.

Impacted from lower travel. 2Q20 operating revenue declined by 19%yoy and 18%qoq to RM101m dragged by the travel segment mainly. This is mainly due to restrictions in domestic and international air travel in 2Q20, which resulted in significantly lower travel demand across key markets in Malaysia, Thailand, Philippines and Singapore.

Moderate recovery seen. Positively, TPG indicated that the downtrend in the travel segment has bottomed out in April and is seeing a moderate recovery in the following months, after the gradual opening up of the economy and uplifting of restrictions on domestic travel. Airasia resumed operations on a staggered basis in Jun20 and is seeing a gradual increase in passenger seat booking, though GWP for the travel business is still significantly lower than pre-pandemic levels.

Cost reduction efforts. The group has also embarked on a cost cutting exercise which saw Tune Protect Malaysia’s combined ratio reduce by 28%. This was mainly driven by lower management expenses (-31%yoy) as a result of reduced staff-related cost, reduced marketing expenses as the group reprioritised marketing spend to campaign-specific targeted marketing, as well as enhanced receivables management. Of the measures, the reduction in marketing expenses accounted for the bulk (i.e. 52%) of the cost reduction in 2Q20.

Recommendation. Following a sharp 20% share price deterioration in the past month, TPG is now trading at close to our target price. We now raise TPG to NEUTRAL from SELL at unchanged TP of RM0.25, pegged to 7x FY21F earnings, at 1-SD below its 2-year historical average PER.

Source: MIDF Research - 3 Aug 2020