Focus on offline travel insurance expected for Tune Protect

This article first appeared in The Edge Financial Daily, on March 8, 2019.
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Tune Protect Group Bhd
(March 7, 64.5 sen)
Maintain add with an unchanged target price (TP) of 75 sen:
On March 5, we met up with the company’s new chief executive officer Khoo Ai Lin, who was appointed on Jan 14.

 
We are more positive on Tune Protect following the meeting as Khoo highlighted the company’s strategies, which we think would yield positive results for the company’s financial performance and aggressive targets for the next three years.

We are encouraged that the company aims to increase the number of its digital contracts (for insurance policies sold online) from 10 million now to 42 million over the next three years.

This would translate into a three-year compound annual growth rate (CAGR) (2018-2021 forecast) of 61%.

We think the company plans to achieve the above target via greater focus on expanding in the offline travel-insurance market, mainly through travel agents, and having more tie-ups with insurance partners in various countries.

However, we are mindful the offline market could be competitive, with competition from other larger insurance players.

We estimate that if the company achieves its aggressive target for the digital contracts, it could register a net profit of RM185.6 million in FY21 (forecast [f]), which is 118.8% higher than our forecast of RM84.8 million.

This is based on the assumptions of three-year CAGR of 61% for the gross premium (GP) of travel insurance (TI) (assumed to be in line with the growth in digital contracts) and 7.5% for the GP of non-TI.

If this comes to pass, our TP for Tune could be pushed up to RM1.59, compared with 75 sen currently.

Under Tune’s transformation programme, we are positive on its plans to diversify beyond travel insurance, as we think this segment’s growth could soften in the next few years.

The new income streams could come from fees paid by other insurers to utilise its platform for online sales of insurance products.

Our FY19-21(f) earnings per share and dividend discount model-based target price of 75 sen are intact. We retain our “add” call on Tune given the expected benefits from its ongoing transformation programme.

The potential rerating catalysts are the pickup in the growth of TI premiums and improved claim ratio. Its valuations are also attractive at CY20F price earnings of 6.3 times and price-to-book value ratio of 0.8x. — CGSCIMB Research, March 6