Tune Ins Holdings Bhd
(Aug 19, RM1.37)
Maintain add with a lower target price (TP) of RM2.64: Tune Ins Holdings’ first half ended June 30, 2015 (1HFY15) net profit was below expectations at only 40% of our full-year forecast and 41% of consensus due to higher-than-expected net claims and expenses.
The absence of dividends in 1HFY15 was not a surprise. Raising the gross claims by about 5% led to a 5% to 6% drop in our financial year ending Dec 31, 2015 (FY15) to FY17 earnings per share forecasts and dividend discount model-based TP.
Despite the weaker-than-expected 1HFY15 earnings, Tune Ins remains an “add” and our top pick for the sector in anticipation of strong earnings in second half (2HFY15). All the longer-term rerating catalysts are intact, including the bright prospects for the travel insurance (TI) business in the region and its non-life insurance unit in Thailand, as well as more tie-ups with other airlines.
The 1HFY15 net profit slid by 3% year-on-year (y-o-y) due to the earnings decline in the first quarter of FY15 (1QFY15). In fact, net profit growth recovered to 12.6% year-on-year (y-o-y) in 2QFY15, on the back of healthy expansion of 14.3% y-o-y in gross premiums.
At the top line, the TI business recorded a strong 24% y-o-y jump in gross written premium in 1HFY15. However, its 1HFY15 net profit only rose 1.7% y-o-y to RM29.3 million, dragged by higher commission and management expenses to support the business expansion.
Its non-life insurance unit in Malaysia recorded a 15% y-o-y rise in 1HFY15 net profit to RM10.5 million, driven by stable growth across all underlying businesses. This was achieved on the back of a healthy 10% y-o-y rise in gross written premium.
In 1HFY15, it had a portfolio mix of 32% for medical insurance, 26% for motor insurance and 16% for fire insurance. We envisage better earnings in 2HFY15, especially 4QFY15, as air travel is likely to pick up towards year-end. However, the trend in 3QFY15 is expected to be volatile, given the regional economic slowdown and the currency devaluation in certain countries. — CIMB Research, Aug 18
This article first appeared in digitaledge Daily, on August 20, 2015.