Pending Tune Ins (TIH)’s 1H13 results due later this month, we  are maintaining our forecasts and FV of MYR2.15, derived from ascribing a target  P/E  of    20x    to  FY14  EPS.  We  like  the  stock  for  its  industry-beating earnings growth prospects. Future re-rating catalysts include: i) expansion  into  new  markets,  ii)  overseas  acquisitions,  iii)  more partnerships, and iv) a boost in take-up rates. Maintain BUY.   

- Strong  growth  in  AirAsia’s 2Q passenger  numbers.  Based  on  the latest passenger data from AirAsia (AIRA MK, FV: MYR3.39), we expect TIH’s 1H13 online net earned premiums to  reach MYR45m-50m (1Q13: MYR22.2m). This should translate into an online net profit contribution of ~MYR25m (1Q13: MYR11m), assuming: i) a take-up rate of 26-32%, ii) a 50%  profit  margin,  and  iii)  online  claims  ratio  being  kept  at  ~4%.  The AirAsia  Group  recently  reported  strong  2Q13  y-o-y  passenger  growth  – AirAsia  Indonesia,  with  32.6%,  AirAsia  Thailand  (25.1%),  and  AirAsia Malaysia (12.4%) – while AirAsia X (AAX MK, FV: MYR1.65) reported a commendable 24.2% growth over the same period.  

- Extending  market  reach  further  by  FY13.  Despite  AirAsia’s loss  of potential business from Japan, TIH is expected to see more contributions from  fast-growing  markets  like  China  and  Indonesia,  and  from  new markets like Myanmar. The group is also committed to expand its market reach  by  having  operations  in  as  many  as  18  markets  by  end-FY13. More  M&As  of  insurance  licences  may  also  materialise  as  AirAsia  has presence in Brunei, South Korea and Taiwan. Also, contributions from its indirect  partnership  with  Cebu  Pacific  Air  are  expected  to  flow  in  from 2HCY13.

- TIMB to remain strong. The group’s non-online general insurance arm, Tune  Insurance  Malaysia  (TIMB),  may  see  the  continued  profit momentum  it  experienced  in  1Q13,  boosted  by  its  higher  non-motor portfolio  mix  of  73%  (vs  52%  in  FY12).  However,  both  its  claims  and expense ratios may continue to remain under pressure. We expect TIMB to  report  MYR0.5m  more  in  claims  provisioning  for  the  Malaysia  Motor Insurance Pool, bringing the total to MYR2.4m for FY13.  

- Awaiting  new  catalysts.  We  continue  to  like  TIH’s low-cost  model, regional presence and airline tie-ups. That said, we are keeping our BUY call on the stock as potential re-rating catalysts may prompt an upgrade of our FV. As we see it, the biggest risk is whether TIH would be able to maintain  its  track  record  of  low  online  claims  ratio  amid  its  business expansion and partnership plans.  

Source: RHB