Tune Ins’ earnings from travel insurance to continue to rise

by **Cals** Wed 26 Feb 2014, 17:35

Business & Markets 2014

Written by CIMB Research

Wednesday, 26 February 2014 10:00

Tune Ins Holdings Bhd
(Feb 25, RM1.83)
Maintain add with target price of RM2.55: Tune Ins’s net profit for financial year 2013 ended Dec 31 (FY13) was 6% and 18% above our and consensus’ forecasts respectively.

The variance came from the lower than expected tax rate of 5% arising from tax relief as a result of its payment to the Malaysian Motor Insurance Pool.

It did not declare a dividend but management said it will announce a FY13 dividend per share (DPS) in March or April 2014, based on a 40% payout ratio, or DPS of 3.7 sen. Cutting the assumed tax rate lifts our FY14 net profit forecasts, but our dividend discount model-based target price is unchanged.

We maintain our “add” rating on Tune Ins due to rerating catalysts such as: (i) better than expected FY13 earnings; and (ii) bright prospects for the travel insurance (TI) business.

We are positive about rapid growth in the TI business. This unit’s FY13 revenue jumped by 45% and pre-tax profit by 41.1%. Although the non-life insurance unit’s revenue in Malaysia almost doubled in FY13, its pre-tax profit slid by 17.6% year-on-year (y-o-y).

Overall, the group’s FY13 revenue increased by 71.9% and pre-tax profit by 32.2%.

In FY13, the revenue from the TI segment (including inter-segment revenue) accounted for only 22.8% of the group’s top line. However, it was the biggest contributor to net profit, at 60.5%. This was mainly due to its high pre-tax profit margin of 52.7% compared to 9.6% for the non-life unit in Malaysia, which was weighed down by a high claims ratio. The earnings contribution from TI will continue to rise because of its swift premium expansion and lucrative margins.

For exposure to the fast growing and high margin travel insurance segment, there is no better choice than Tune Ins. Its strengths lie in the tie-up with AirAsia Bhd and its expertise in this area, which will not be easily replicated by its competitors. There will be a big boost to earnings should its plans to forge a similar collaboration with other airlines materialise. For these reasons, we advise investors to accumulate the stock. — CIMB Research, Feb 25

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This article first appeared in The Edge Financial Daily, on February 26, 2014.