RIDING on its exclusive tie-up with budget carrier and 13.7% shareholder AirAsia Bhd, Tune Protect Group Bhd has a decent foothold in travel insurance, which some skimp on to save on the cost of travel but others are taking more seriously due to rising global uncertainty.

But UOB Kay Hian Research, for one, reckons that the non-travel insurance business is one area that the market “may have overlooked” when it initiated coverage on Tune Protect with a “buy” recommendation and RM2.05 target price on Nov 11.

“Tune Protect’s valuation could rerate over the next few years as the group is better insulated from potential premium pricing competition emanating from industry-wide phased-in de-tariffication of motor and fire insurance. This is because travel insurance, which contributes to 40% of the group’s net earned premium, is not impacted by the de-tariffication process,” the note read.

Its target price represents 28.1% upside potential from the RM1.60 it closed at last Thursday — up 24% year to date. All six analysts tracking it have a “buy”, but target prices range between RHB Research Institute’s RM1.87 and CIMB Research’s RM2.38, Bloomberg data show.

Those who share the more bullish views have a leveraged option in the form of cash-settled structured call warrants, TunePro-CG and TunePro-CH, which are issued by investment banks.

TunePro-CG expires end-March 2017, has a lower strike price of RM1.65 and is trading at a smaller premium of 18.13% — it closed at eight sen last Thursday — to the underlying stock.

TunePro-CH, which expires three months later on July 10, 2017, and has a RM1.80 strike price, fetched a premium of 26.6% as it closed at 7.5 sen last Thursday. Both have a three-to-one conversion ratio.

Assuming zero premium to the underlying stock, TunePro-CG has a 66.6% upside potential to 13.33 sen if the underlying stock jumps 28.1% to reach UOB’s RM2.05 target price. The upside potential is even higher at 204% to 24.3 sen, if the underlying stock jumps 48.8% to reach CIMB’s RM2.38 target price.

Using the same parameters, TunePro-CH should theoretically be worth 11.1% more at 8.33 sen and 158% more at 19.3 sen, if the mother share reaches UOB’s and CIMB’s target prices, respectively.

Can the warrants run within four to eight months?

In an Aug 21 note, CIMB projected a quarter-on-quarter dip in Tune Protect’s 3Q2016 net profit before a strong rebound in 4Q2016 as the latter is seasonally the strongest in the full year. With a December year-end, the 3Q results should be out by end-November and 4Q by end-February.

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