From  TIH’s  conference  call  on  its  3Q13  results,  we  gather  that momentum is building up in its: i) rebalanced motor insurance portfolio, and ii) Philippines online travel insurance business. We remain positive on  the  group’s  outlook,  and  maintain  our  BUY  call  and  MYR2.40  FV, owing to its:  i) widening margins, ii) market expansion, iii) turnaround story, and iv) tie-ups with other travel providers.

• Satisfactory  quarter.  At  TIH’s  3Q13  results  briefing  yesterday,  CEO Peter  Miller  expressed  satisfaction  with  the  growth  of  the  group’s businesses,  although  he  felt  that  much  more  needed  to  be  done  to achieve its long-term targets.
• Yet to feel full impact from  Philippines.  As mentioned previously,  TIH rolled out its  travel insurance business  to  AirAsia Zest and Cebu Pacific passengers in June. W e understand that  this market  accounted for  only 3% of  overall  3Q13  online  sales or policy count.  However, both  carriers contributed  >10%  of  the  3Q13  passenger  numbers  vis-à-vis  AirAsia (AIRA MK, BUY, FV:  MYR3.63)’s  other entities. Overall, we feel that  the Philippines’  travel insurance contribution  has  yet to  make a  full impact, and expect the take-up rate to increase in the upcoming quarters.   
• The  Tune Insurance Malaysia (TIMB) angle.  The group’s local general insurance  (GI)  subsidiary  is  seeing  its  premium  portfolio  rebalancing bear  fruit.  Hence,  we  believe  it  is  set  to  spur  topline  growth  without compromising  margins.  TIMB’s  motor  portfolio,  which  has  increased  in proportion  to  35%  from  1Q13’s  27%  low,  is  now  deemed  a  lower  risk compared  with  last  year.  The  proportion  of  comprehensive  motor coverage was retained at 99%, while  the  remaining  1% comprises  thirdparty  coverage  (vs  16%  a  year  ago).  Meanwhile,  commercial  vehicle coverage now represents 15% of its motor portfolio mix, up on increasing motor franchise relationships with vehicle makers like Hyundai  (005380 KS, NR), Ford (F US, NR) and Land Rover.
• Maintain  BUY.  We  continue  to  like  TIH’s  exposure  in  the  profitable regional  travel insurance  business. We peg  the stock’s  MYR2.40 FV to 22x FY14F EPS, premised upon above-industry earnings growth.  Note that we have yet to  fully factor in contributions from AirAsia India and PT Batavia Mitratama, in which it is in the midst of acquiring a 70% stake.
• Risks. A surge in online claims ratios from its 4% average is a risk.

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 GI claims ratio
• Higher than expected growth in GI premiums, with a tight lid on expenses and claims
• Potential acquisition opportunities
• New customer segments
• TIMB posting better than expected profits

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