KUALA LUMPUR: CIMB Equities Research advises investors to accumulate Tune given its bright growth prospects in the region, supported by its tie-up with AirAsia, M&As in Thailand, and entry into the Middle Eastern markets.

It said on Tuesday another catalyst would be the revamp of its non-life unit in Malaysia, which would lead to better underwriting margins.

CIMB Research said although Tune Ins’ net profit in the first half 2014  (H1 FY2014) accounted for only 42% of its full-year forecast and 41% of the consensus number, the results were line.

“The factors were the associate companies in Thailand and Middle East will start to contribute from 3Q14, and the seasonally-strongest Oct-Dec quarter (Q4, 2013 accounted for 31% of last year’s earnings) is yet to come. We retain our DDM-based target price at RM2.71 (cost of equity of 9.2%; long-term growth of 4%),” it said.

CIMB Research said the stock remains an Add, underpinned by the potential re-rating catalysts of swift expansion of the travel insurance business; synergistic M&As in Thailand, and entry into Middle Eastern markets.

“The growth of the travel insurance business, which is the key driver for the company, remained strong in H1, FY14 – posting an increase of 20.8% on-year in operating revenue to RM54.6mil, and 21.7% on-year in profits to RM28.6mil.

“However, despite a 17.6% on-year rise in revenue to RM183.8mil in H1,  FY14, the profits from the general insurance business in Malaysia slid by 19% on-year to RM11.9mil,” it said.

CIMB Research said the general insurance business in Malaysia contributed the biggest share of 72.4% to the company’s overall revenue in 1HFY14, more than triple the 21.5% contribution from the travel insurance business.

However, travel insurance was the biggest contributor to the company’s earnings at 55.2%, vs. 23% for the general insurance unit in 1HFY14.

This was mainly due to the much higher profit margin of 52.4% for the travel insurance operations compared to only 6.4% for the general insurance division. 

From: The Star Online