Tune Ins has much more to offer

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tune_cho_22_1055DEVELOPMENTS at Tune Ins Holdings Bhd over the last few months may have made many investors antsy but the company says it has several plans to take the insurer forward.

The stock fell 38% from its peak of RM2.50 last August to a low of RM1.55 on Jan 9, but it rebounded to RM1.78 last Thursday.

“If I were to monitor the share price every day, I wouldn’t be able to sleep,” jokes Junior Cho, the newly minted CEO of Tune Ins (fundamental: 2.70; valuation: 0.65).  

The drop in the share price may be attributed to two consecutive quarters of declining net profit, a change in leadership and the spillover effects of the crash of QZ8051. Tune Ins later clarified that the exposure to claims related to the Indonesia AirAsia X flight will be fully borne by an external reinsurer.  

Nevertheless, Cho says the insurer’s top priority now is to diversify by forging new partnerships with airlines or non-airlines in its travel insurance business and to find opportunities in new markets.

Tune Ins will also be concentrating on its goal to be a leading digital insurance provider to ensure that it rides the wave when motor insurance undergoes detariffication next year.  

One of the markets the company has been trying to penetrate, to no avail thus far, is Indonesia. In 2013, it signed a sales and purchase agreement to acquire a 70% stake in an Indonesian insurance company but the agreement was terminated at the end of the year due to “no substantial progress” in approvals from the Indonesian regulators.

While its plans for Indonesia were put on hold, Tune Ins managed to acquire a 49% stake in Thailand’s Osotspa Insurance PCL, which is now known as Tune Insurance PCL. It also entered into a 49% joint venture with Dubai’s Cozmo Travel LLC for the provision of travel insurance.

Cho, however, is confident Tune Ins’ plans for Indonesia will bear fruit soon. “We’re looking at more than one company in Indonesia now and we expect to make a decision by the middle of this year to determine if we want to move forward. We are very strict in terms of how we want to spend our money in Indonesia.

“There are a lot of changes in the country, which we think is good but there are also some uncertainties on the regulatory side that we need to monitor. We will take that into account when looking at acquisitions.”

Cho adds that the insurance provider wants to be in Indonesia but “under the right conditions” that will yield the investment returns the company desires.

Tune Ins intends to obtain a majority stake in an Indonesian company, although there is a resolution in parliament to reduce foreign shareholding to 49%.

“We will have to wait and see if this will materialise before commenting. They have been talking about it for some time now but we have not seen any progress on that front,” says an analyst.

As part of its diversification plan, Tune Ins is also working at tying up with more airline and non-airline partners while looking at offline markets such as travel agents.

Apart from AirAsia Bhd, Tune Ins has tied up with Air Arabia in the Middle East and Cebu Pacific of the Philippines. Its largest shareholders are AirAsia founder and group CEO Tan Sri Tony Fernandes and Datuk Kamarudin Meranun by virtue of their holding in Tune Group Sdn Bhd, followed by AirAsia.

Currently, 98% of its travel insurance is derived from its partnership with AirAsia. Cho discloses that the highly profitable travel insurance segment contributes two-thirds to the company’s earnings while non-travel insurance contributes the rest.  

It is worth noting that one out of four AirAsia travellers buys a travel insurance policy with Tune Ins. Cho says even when the company was facing problems with the AirAsia booking page, the number only dipped to one out of five people, implying that travellers are still clicking “okay” on travel insurance.

However, Cho agrees that diversification is important and says the company is making an effort to reduce its dependency on AirAsia to 85% over the next three years through the addition of new airline partnerships while still growing the AirAsia travel insurance portfolio.

“If you put all your eggs in one basket, you are exposed to volatility. That is why we want to execute quickly on airline partnerships — so that we can start cushioning against any volatility in a specific region or at a specific airline,” he explains.

Meantime, two consecutive quarters of lower net profit raise the question of whether Tune Ins has lost its momentum.  

Net profit for the third quarter ended Sept 30, 2014 (3QFY2014), dropped to RM16.17 million from RM16.82 million previously. The decline was attributed to some large fire claims. This came on the back of higher operating revenue of RM109.51 million compared with RM98.81 million previously.

Net profit for 2QFY2014 had declined 12% to RM14.35 million from RM16.31 million a year earlier on the back of higher provisions for the motor insurance pool.

Cho says Tune Ins will still be able to achieve double-digit growth in FY2015, but does not reveal if it will be able to see year-on-year net profit growth in the previous 30% range.

Analysts believe Tune Ins is a value buy now as its share price has come off its peak of RM2.50 last August. Its target prices range from RM2.17 to RM3 and it has five “buy” calls and one “hold”.

“It doesn’t deserve to be this cheap. It is a growth stock. Other listed insurance companies are mainly domestic bound, but Tune Ins has global reach, thanks to its unique business model,” says an analyst.

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This article first appeared in The Edge Malaysia Weekly, on February 16 - 22, 2015.