We gather from TIH’s conference call yesterday that it remains focused on enhancing: i) profitability, via portfolio rebalancing and good claims management,  and  ii)  take-up  rates,  while  expanding  its  online  travel insurance  business.  We  tweak  our  assumptions  and  upgrade  our FY13F-14F  EPS  forecasts  by  3%.  Maintain  BUY  and  FV  of  MYR2.40, pegged to 22.0x FY14F EPS.   

- A  stronger  2H.  CEO  Peter  Miller in  TIH’s 2Q13  results conference call  yesterday  highlighted  that  2HCY13  could  offer  more  upside  to  the company’s business expansions, ie expanding its travel insurance reach to  18  markets  –  in  line  with  AirAsia  (AIRA  MK,  BUY,  FV:  MYR3.94)’s expansion  plans.  Contributions  from  the  Philippines  should  also  kick-in from this period onwards, given its partnerships with Cebu Pacific Air, for international  flights  from  Malaysia  and  Singapore,  and  Zest  Air. Management  also  said  that  2HCY13  could  witness  the  roll-out  of  new products and possible tie-ups with other major travel providers.  

- TIMB  to  keep  enhancing  profits.  TIH’s  general  insurance  subsidiary, Tune  Insurance  Malaysia  (TIMB),  hopes  to  keep  improving  its underwriting margins and maintaining its claims ratios at a targeted 65% – in line with the industry. This is within our earlier assumptions of a flat topline growth in non-online general insurance premiums, but better than FY12’s underwriting  results.  Overall,  1H13 group  premiums  was  flat  (vs 1H12  proforma  figures)  due  to  a  portfolio  rebalancing,  which  caused  a decline in motor premiums.

- Upgrade  EPS  by  3%.  We  revise  our  combined  ratio  (claims  and expense) as well as our tax rate (see Page 3) assumptions, to take into account  Management’s new  guidance.  While  there  was  some  tax  relief attributed  to  the  Malaysia  Motor  Insurance  Pool  (MMIP)  in  1H13 (MYR2.7m),  the  company  does  not  expect  more  in  2H13.  All  in,  we upgrade our FY13 and FY14 EPS forecasts by 3%.  

- Risks.  Risks  include  surge  in  online  claims  ratio  and  weaker-than-expected  passenger  growth.  However,  YTD,  there  has  been  no deterioration  in  its  online  claims  ratio  from  its  historical  4%.  We  may revise  downwards  our forecasts should AirAsia’s passenger numbers weaken in the future.

- Investment  case.  We  maintain  our  FV  at  MYR2.40,  pegged  to  an unchanged  22.0x  FY14  EPS.  We  still  like  the  stock  for  its  superior underwriting margins and potential re-rating catalysts (see Page 8).

Source: RHB