Friday, May 19, 2017

Tune Protect : Strong focus on digital channels with exposure to regional markets BUY

Tune Protect : Strong focus on digital channels with exposure to regional markets                            BUY

Tune Protect Group (TPG) is a diversified general insurer. It is involved in various classes of general insurance business offering motor, fire, travel, medical, worker compensation, marine, PA and other miscellaneous coverage. The group is related to AirAsia with the latter holding a 13.7% stake in TPG. TPG focuses strongly on travel insurance which is sold mainly through digital channels. Claims ratio for travel insurance was consistently below 5.0% over the last 5 years (FY12 to FY16). This has contributed to a healthy underwriting surplus of the group. Its strong tie-up with AirAsia enables it to leverage the expansion of the latter. This provides TPG with a competitive advantage compared to peers. Apart from AirAsia, tie-ups have also been established with Air Arabia and Cebu Air Pacific Air (for outbound flights in the Philippines) via Malayan Insurance Company, Inc. 

On travel insurance, the group has a regional footprint that covers 54 countries and territories as well as 16 inbound markets, mainly through its partnership with various strategic partners and agents. Its travel insurance policies are well diversified in terms of issuance by markets. The group has a low combined ratio of 83.2% in 2016, which is below the industry’s. This was attributed to a lower commission ratio of 17.0% with its relatively smaller agency force of more than 1,300 agents and its strong focus on digital sales channels for travel insurance. For FY17 and FY18, we forecast the group to achieve a combined ratio of 82.0%. We expect FY17 and FY18 ROE to be 15.3% and 14.8% respectively. The 3-year historical average P/BV for the stock is 2.5x. Based on the current market price, the stock is trading at 1.6x to our FY18F BV/share. 

We initiate coverage on TPG with a BUY and a fair value of RM1.80/share based on 2.0x FY18 P/BV. The forward P/BV is in line with the average M&A P/BV of general insurance companies and circa 1SD below the stock's 3-year historical average P/BV.

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