Tune Ins Holdings Bhd
(Dec 30, RM1.70)
Maintain “add” with unchanged target price (TP) of RM3.00: Tune provided travel insurance (TI) to some of the passengers (about 30 people) on Indonesia AirAsia’s flight QZ8501 from Surabaya to Singapore. The plane is believed to have crashed into the Java Sea.

Hence, the company will be affected by the incident in three ways: (i) insurance claims, (ii) a higher reinsurance rate following the incident, and (iii) any slowdown in AirAsia’s passenger growth.

However, the overall impact on Tune’s earnings will be minimal because (i) management has reconfirmed that Tune will not have to bear the claims as it reinsures out all these risks, (ii) Tune has recently signed reinsurance contracts with its reinsurers for 2015 and, hence, the rate for 2015 has been locked in while the rate for 2016 will depend on the performance in 2015, and (iii) our aviation analyst does not expect this to have a long-lasting impact on AirAsia’s passenger growth. Also, Tune did not insure the ill-fated aircraft. We estimate that every 1% percentage point slowdown in AirAsia’s 2015 passenger growth would reduce Tune’s financial year 2015 and 2016 net profits by about 0.7% to 0.8%.

We continue to advise investors to accumulate the stock. The selldown on the stock following the incident is a buying opportunity. — CIMB Research, Dec 29

This article first appeared in The Edge Financial Daily, on December 31, 2014.