TIH’s  MYR71m  FY13  core  profit  surpassed  our  estimates  by  13%  and street  by 9%. The strong growth  in online/travel premiums  significantly boosted  its  blended margins.  For FY14,  we believe TIH’s  fundamentals and  expansion  plans  for  its  travel  business  and  Malaysian  operations will  outweigh  potential  weakness  in  1HCY14  from  Thailand’s  tourism slump. Maintain BUY, FV MYR2.40 (22x FY14F EPS).

• 2013:  Spectacular  full-year  earnings  since  IPO.  Tune  Insurance (TIH)’s core profit of MYR71m charted 45% growth vs revenue growth of 15%  on:  i)  strong  online  sales,  ii)  improved  blended  margins ,  and  iii) higher investment income. As forecasted in our 23 Jan earnings preview titled  “Tune  Ins  Holdings  -  Beneficiary  from  Any  Recovery  In  Tourism Outlook”,  its  online/travel  premiums  charted  a  strong  46%  growth  to MYR101m  on  a  34%  increase  in  online  policies  written  to  8m  policies (consistent with the ~30% customer growth of its airline partners) . Based on  our  calculations,  the  blended  take-up  rate  improved  marginally  to 28% (from 27%), in line with the group’s higher online policy contribution from outside  Malaysia.  The  increasing  revenue  proportion of  the  travel insurance business, which carries a low 4% claims ratio, has  improved TIH’s  blended  underwriting  (UW)  margin  to  22%  (from  21%)  despite being hampered by higher expense and commission ratios.
• 2014:  What  to  expect.  In  a  briefing  yesterday,  management  said 1HCY14  could  be  slow  for  TIH  as  it  expects  to  be  impacted  by  the tourism slump in Thailand  –  a market that  contributed 19% of its FY13 online  policies.  This  is  within  our  prediction.  However,  we  remain optimistic over  its  long-term strategies. TIH is planning to:  i) negotiate a few more tie-ups with airlines and travel providers (the most recent being Cozmo Travel and Cebu Pacific), ii)  penetrate markets that  it  has yet to have  a  presence,  iii)  secure  licenses  in  key  markets  –  Thailand  and Indonesia,  and  iv)  expand  its  marketing  and  product  range  across  the value  chain.  We  are  also  excited  that  its  Malaysian  subsidiary,  Tune Insurance Malaysia (TIMB) has  streamlined  its claims efficiency and is ready to tap into more corporate accounts. TIMB was appointed as panel insurer for Hyundai,  is  renewing Petronas policies, accessing  the  small and  medium  enterprise  (SME)  sector,  and  targeting  an  additional  400 agents in CY14 (from 1,138).
• A growth stock proposition. We like TIH for a regional exposure in the profitable travel insurance business.  Our  MYR2.40 FV (22x FY14F EPS, in line with the PE-G of its sector peers) is maintained, premised upon above-industry  earnings  growth,  supported  by  margin  and  market expansions. No changes to our forecast.

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
• There was accounting restatement in certain balance sheet items. The group had accounted for the TIMB acquisition on a provisional basis as the purchase price allocation (PPA) and goodwill allocation to specific cash generating unit was completed

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 segment
• TIMB posting better than expected profitability

Company Profile
Tune  Insurance  Holdings  (TIH),  an  investment  holding  company,  is  engaged  in  the  provision  of  various  general  and  life  insuran ce 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