We  expect  no  major  surprises  from  Tune  Ins’  3Q14  results,  as passengers carried by its airline partners are on track to meet our full year forecast, which had factored in lower travel demand. Reiterate BUY and  MYR3.00  TP  (24x  FY15F  P/E,  41.6%  upside).  We  see  a  long-term transformation  in  this  growth  stock,  buoyed  by  its  new  leadership,  a swift global expansion and sharpening of its multichannel capabilities.

We  expect  Tune  Ins  to  report  3Q14 travel  premiums  of  ~MYR23m(3Q13: MYR26m), assuming a 26-32% take-up rate. AirAsia’s (AIRA MK, BUY,  TP:  MYR2.73)  passenger  numbers  expanded  by  1%:  i)  AirAsia Indonesia (-10%), ii) AirAsia Thailand (12%), iii) AirAsia Malaysia (0.5%), iv)  AirAsia  Philippines  (-15%),  and  v)  AirAsia  X  (AAX  MK,  SELL,  TP: MYR0.68) (24%). AirAsia India reported passenger numbers for 3Q14 as well.  All in,  passengers  carried  by  the  AirAsia  group  and  Cebu  Pacific (CEB  PM,  NR)  dropped  4%,  reflecting  weaker  regional  travel  demand. Nevertheless,  YTD  total  passengers  made  up  75%  of  our  50m passenger assumption, as we had expected this short-term trend.   

Undergoing  a  leadership  transition.  In  the  first  week  of  November, Tune Ins conducted a briefing for  investors. It announced that Mr Junior N Cho will replace Mr Peter Miller as the CEO of the group, while Mr AlIshsal bin Ishak is  designated as digital director. Both were  former staff at  AirAsia.  We  see  this  transition  to  be  positive  as  we  believe  Cho’s credentials  are  the  right  fit  to  the  group’s  business  model  and  could enhance  its  customer  acquisition  strategies.  His  experience  working  in aviation  groups  and  insurance  groups  (MetLife  and  Allianz),  and  hishands-on  knowledge  of  digital/technology  solutions,  would  help  the company’s  long-term  aspirations  to  be  a  global  leader  in  travelinsurance, and direct business-to-customer (B2C) e-consumer products.  

Forecast  retained.  Tune  Ins  is  expected  to  report  results  on  18  Nov. Despite a lack of signs for recovery in the travel industry, we expect  2H to  be robust  due to  full contributions from the  Middle  East joint venture and its Thailand associate. A sensitivity analysis suggests that every 1% change in the take-up rate could impact its profit by 2%. 

Maintain  BUY  with  a  MYR3.00  TP  (24x  FY15F  P/E),  a  premium  to sector  valuations  of  14-20x,  implying  a  16%  3-year  forward  earnings CAGR vs  the  sector’s 13%.  Tune Ins is a growth stock with valuations supported  by  a  swift  global  expansion,  as  well  as  partnerships  with airlines,  travel  providers  and  e-commerce  players.  Diversification  away from AirAsia is pivotal to support our  BUY  call.  Other risks may includean uptick in expenses as  Tune Ins realigns  its B2C focus and sharpens its multiplatform capabilities.  

Brief profile of Mr Junior Cho.  Junior Cho is chief executive advisor and chief operations advisor for the Philippines at AirAsia, a leading regional airline serving Malaysia  and  South-East  Asian  destinations.  He  was  previously  vice  president and chief marketing officer of CIGNA International in  South Korea. Cho is a senior executive with more than 20 years of extensive global leadership and managerial experience  in  the  financial  services  industry  and  is  recognised  as  a  strategic leader with exceptional managerial and team building skills. At CIGNA, he  led the marketing/branding  strategy,  strategic  planning  and  research,  product development,  e-commerce  and  direct  marketing  sales  channels,  and  customer value management teams. Prior to CIGNA International,  Cho was head of market strategy and managing director at Allianz Life Korea. In addition, his professional experience includes regional and consulting roles with MetLife International and Accenture/Andersen  Consulting  (the  US  and  Korea).  Cho  holds  a  Bachelor  of Science in Mechanical Engineering from Columbia  University and has spent most of his life in South America, the Caribbean and Asia.

Source: RHB