TIH’s  9M13  core  profit  of  MYR50m  was  in  line  with  our  but  beat consensus’  estimate,  at  79%  and  81%  of  both  forecasts  respectively. Online  and  travel  premiums  continued  to  outperform  the  overall industry growth, leveraging on  demand from passengers. Maintain BUY as we  deem  TIH an attractive growth stock.  The last price provides an attractive 26% upside to our MYR2.40 FV, at 22x FY14F EPS.

• Another  great  showing.  TIH  more  than  doubled  its  core  profit  from MYR23m  in  9M12.  As  we  highlighted  in  our  13  Nov  preview  on  its earnings, TIH’s online/travel premiums surged 46% to MYR71m, spurred by a 26% increase in policies y-o-y (15% rise in 3Q13 policies q-o-q from 2Q13).  The  company  has  issued  5.7m  online  policies  YTD,  consistent with  the  passenger  growth  pace  of  its  airline  partners.  We  note  the particularly  strong  contributions  from  Thailand  and  China.  Meanwhile, profit  margin  at  the  online/travel  segment  was  unchanged  at  52%, implying that  TIH’s online claims ratio remains  intact at 4%.  Please refer to our results table for details of the non-recurring items.
• Tune Insurance Malaysia (TIMB) doing better. The group’s non-online general  insurance  business  operated  by  TIMB  recorded  a higher  profit before tax (PBT) of MYR22m (+29%)  due to a better  mix of  non-motor products,  which  gave  rise  to  higher  blended  margins.  A  portion  of  the travel  premiums  in  Malaysia  was  underwritten  by  TIMB,  resulting  in  a surge  in  the  proportion  of  personal  accident  and  medical  coverage, relative  to  the  high-risk  motor  premiums,  which  remained  at  35%  of
• TIMB’s overall  portfolio  (vs 55% in  3Q12).  The better profits at  both  the travel  insurance  segment  and  TIMB  boosted  the  group’s  9M13 underwriting margins to 21.3% from 12.3% in 9M12.
• Improved  combined  ratios.  The  group’s  overall  combined  9M13 (claims  +  expense)  ratio  improved  to  78%  (9M12:  88%;  3Q13:  75%) despite  the  inclusion  of  provisioning  for  losses  at  Malaysia  Motor Insurance  Pool.  Nevertheless,  its  management  expense  (ME)  ratio remained  high  at  24% as it made  a prudent provisioning for impairment of a reinsurance asset (ie  Best Re) amounting to MYR1.2m, or 1.9% of the ME ratio, in 3Q13. We treated this as a non-recurring item.
• Promising growth stock. We continue to like TIH’s regional exposure in the  profitable  travel  insurance  business. We  peg  its  MYR2.40  FV  to  a 22x  FY14F  EPS,  premised  on  its  above-industry  earnings  growth, propelled by margin as well as market expansion. 

Financial Exhibits

• We believe TIH's topline growth will continue to be driven by the strong latent potential of online premiums. We believe that its TIMB subsidiary's revenue growth is not likely to pick up yet, as management is more focused on boosting its bottomline
• We expect TIH’s claims ratio to be better than the industry’s, as we project an increase in the proportion of low claims online travel insurance premiums vs total premiums. Historically, its online claims ratio stands at 3.6%
• TIH's repayment of MYR133m in borrowings (for the business expansion via TIMB) is expected to result in zero gearing.

SWOT Analysis

Re-rating catalysts:

• Higher than expected take-up rate in the
• online business
• Better than expected improvement in general insurance (GI) claims ratio
• Higher than expected growth in GI premiums, with controlled levels of expenses and claims
• Potential acquisition opportunities
• New customer segments
• TIMB posting better than expected profitability
• Higher dividend payouts

Company Profile
Tune  Insurance  Holdings  (TIH),  an  investment  holding  company,  is  engaged  in  the  provision  of  various  general  and  life  insurance products  in  the  Asia-Pacific  region.  The  company  offers  a  range  of  online  products,  including  travel,  lifestyle  protection  and  guest personal accident insurance.

Recommendation Chart

Source: RHB