Tune Ins reignites M&A plans

by **Cals** Mon 07 Apr 2014, 16:49

Business & Markets 2014

Written by RHB Research Institute

Monday, 07 April 2014 10:23

Tune Ins Holdings Bhd
(April 4, RM2.13)
Maintain buy with target price of RM2.40: Tune Ins is negotiating with new potential partners to revive merger and acquisition (M&A) plans in Indonesia. We are optimistic on this development as we feel regulatory conditions for foreign insurers are now investor-friendly.

We like Tune Ins’ regional and margin expansion story. Its unique business model combines the best of both worlds of insurers and prestigious online-centric consumer brands.

In Indonesia, Tune Ins is negotiating with new potential partners. Acquiring an insurance licence to operate in countries that are key markets for its lucrative travel insurance business has been a key target since its initial public offering.

Tune Ins planned to acquire a 70% stake in PT Batavia Mitratama Insurance in 2013 but the plan was terminated due to unresolved issues with the Indonesian regulators. But we feel optimistic this time as we believe the regulatory conditions are now more investor-friendly to foreigners.

The Financial Services Authority had recently allowed foreign insurers to open branches in Indonesia, following the establishment of the Asean Economic Community. The current maximum foreign ownership cap is 80%.

Aside from Indonesia, the insurer is in the midst of making its M&A mark in Thailand, as its potential investment in Osotspa Insurance Public Company Ltd, a general insurer with a long operating history in Thailand, is pending regulatory approval.

Tune Ins is also: (i) looking at more tie-ups with airlines and travel providers (the most recent being Cozmo Travel and Cebu Pacific); (ii) penetrating markets in which it has yet to have a presence; and iii) expanding its marketing and product range across the value chain.

We are also excited that its Malaysian subsidiary, Tune Insurance Malaysia, has streamlined its claims efficiency and is ready to boost top line growth, with more Petroliam Nasional Bhd policies, small and medium enterprise accounts, and targeting an additional 400 agents in calendar year 2014 (from 1,138).

Maintain “buy” with target price of RM2.40 (unchanged 22 times price-earnings ratio [PER]). It is at a premium to sector valuations of 14 times to 18 times PER on high earnings growth expectations and regional market expansion. It also has a unique, profitable business model and partnerships for its travel insurance, combining the best of both worlds of insurers and consumer stocks. — RHB Research Institute, April 4

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This article first appeared in The Edge Financial Daily, on April 7, 2014.