In  our  initiation  report  on  TIH  earlier,  we  highlighted  that  Thailand’s Health  Ministry  may  introduce  mandatory  travel  insurance  for  all tourists.  If  implemented,  we  see  more  opportunities  vs  risks  for  the company, with Thailand’s take-up rate and TIH’s FY14 EPS rising by 7-30%  and  4-21%  respectively.  We  raise  our  FV  to  MYR2.40  (from MYR2.15) as we peg a higher P/E of 22x FY14F EPS vs 20x previously. 
 
- Mode of payment undetermined. Thailand is still mulling the imposition of  mandatory  travel  insurance  via:  i)  insurance  charges  on visa  fees,  ii) hotel tax, iii) additional fees on airfares (benefit TIH’s business outright), and/or  iv)  collecting  medical  fees  at  embassies  or  immigration checkpoints. The state agencies are expected to move to the next phase of discussions towards year-end.

- Potential  uptick  in  Thailand’s take-up  rate.  A  simple  simulation  to assess the potential market penetration upside vis-à-vis tourist arrivals is shown on Fig. 1. In our scenario analysis, we deem the potential market penetration  similar  to  TIH’s  current  take-up  rate  of  26-32%.  We  have assumed  TIH’s market penetration  among  tourists  in  Thailand  at  26%. We gauge that the potential additional take-up, or tourist market that can be tapped by TIH, is 7-30% – assuming it is unable  to capture the 39% of  tourists  that  require  visas,  and  the  28%  with  insurance  from  other providers/tour packages.  

- Potential FV between MYR2.23-2.60. Our simulation provides a 4-21% FY14F  EPS  upside,  assuming  a  4%  online  claims  ratio  and  50%  profit margin. Note that Thailand accounts for ~20% of TIH’s travel insurance policyholders. We retain our BUY call and raise our FV to MYR2.40 from MYR2.15, pegged to a higher 22x FY14F EPS (from 20x) on account of the  potential  re-rating  on  its  EPS  CAGR  and  underwriting  margins  of >20%, which are superior to the general insurance industry’s 13%.  

- Risks. We view the proposed mandatory travel insurance positively  but are  nonetheless  mindful  of  the  potential  risks,  ie:  i) TIH’s 3-4%  online claims  ratios  could  deteriorate  if  medical  claims  escalate  and  outweigh the take-up rate boost, ii) travel demand to Thailand may slow given the accompanying  increase  in  travelling  cost  and  the  hassle  in  verifying insurance coverage, iii) competitors may instead emerge as beneficiaries at  TIH’s expense,  iv)  the  proposal  could  face  huge  execution  risk  (ie resistance  and  negative  public  feedback  from  travel  forums  and  online Thai newspapers), and v) there are doubts as to the efficacy of enforcing mandatory travel insurance. 

Source: RHB