As highlighted in our earlier reports, we are excited about Tune Ins’ first successful M&A on 2 May 2014 with Osotspa’s Thailand insurance unit, OSI.  We  believe  synergies  can  be  reaped  immediately  through  direct underwriting of online premium, leveraging on health awareness (given the  Osotspa  group’s  reputation  in  beverage  and  energy  drinks),  and opportunities for more tie-ups. Maintain BUY and FV at MYR2.70.

• Official details of the transaction. On 2 May 2014,Tune Ins announced that  it  had  paid  its  acquisition  for  a  49%  stake  in  Osotspa  Insurance (OSI)  and  Permpoonsub  Broker  (PPS)  for  THB408.7m  (MYR41.2m). Both OSI and PPS shall become  its associates once the share tran sfer exercise completes within two weeks.  OSI is a general insurer with >100 years of presence in Thailand. It was a 57% subsidiary of the Osotspa Group,  one  of  Thailand’s  leading  beverage  companies  (energy  drinks were  reported  to  constitute  80%  of  the  group’s  entire  product  output), which  also  has  varied  business  entities  engaged  in  pharmaceutical, glass and education. PPS is an in-house broker of OSI.
• Positive  on  the  first  successful  M&A  deal.  We  deem  the  purchase consideration  (at  1.7x  P/BV,  based  on  OSI’s  FY13  net  assets  of MYR48.7m)  fair  and  within  the  ~2x  P/BV  of  M&A  transactions  in  the region. This will be funded mainly by Tune Ins’ IPO proceeds. Aside from a provision to  Best Re’s  reinsurance claims  that  resulted in a net loss of MYR8.4m  in  FY13,  OSI  had been  making  profits  from  2008-2012. We are  excited as this marks the first successful  completion of a M&A deal. OSI  will  offer  Tune  Ins:  i)  the  opportunity  for  a  direct  underwriting  of online insurance in Thailand, a substantial market that contributed 19% of its FY13 online policies,  ii) expand its products beyond  Malaysia, with cross-selling  opportunities  to  Osotspa’s  customer  base,  iii)  access  to OSI’s  5-year  status  as  Osotspa’s  appointed  insurer,  and  iv)  provides potential access to tie-ups with airlines and new distribution channels.
• Maintain  BUY.  Its  MYR2.70 FV  is  pegged to a  20x FY15F P/E  (from a 22x FY4F P/E). We deem Tune Ins a growth stock  that  deserves  to  be traded  at a premium to sector valuations of 14-20x P/E, in view of high earnings  growth,  margin  expansion  and  market  expansion  amid  an Asean customer base. We  retain forecasts for now  with an upside bias, given immediate accretion to its associate income and net premium.
• Risks.  A  surge  in  online  claims  ratio,  competition  as  well  as  weak marketing may hurt its take-up rate. Any strategic stake selldown by the main shareholders presents opportunities to accumulate the stock.

Source: RHB