TUNEINS (5230) : Tune Ins Holdings Bhd - Travelling past the headwinds
Target RM3.00 (Stock Rating: ADD)
The information we gathered from Tune Ins conference call was comforting after the company’s weak 3QFY14 earnings announcement last night. The 3QFY14 claims ratio was bumped up by two chunky fire claims, which were irregular in nature. Moreover, there are signs of recovery in the Thailand travel insurance business in Nov 2014, following the slump in 2Q-3QFY14. The brighter growth prospects for the travel insurance business in the region and the non-life insurance market in Thailand are re-rating catalysts that underpin our unchanged Add recommendation. Our DDM-based target price (cost of equity of 9.2%; long-term growth of 5%) is also intact.
What Happened
On 18 Nov 2014, Tune Ins’s new CEO, Junior N. Cho hosted a conference call on the company’s 3QFY14 financial results. The focus was on the reasons for the weak 3Q earnings and updates on the strategic thrusts going forward.
What We Think
The new information that we gathered from the conference call indicated that the underlying earnings trend in 3QFY14 was less gloomy than initial appearances. The rise in the claims ratio was not structural but partly caused by two big fire claims, which were irregular in nature. On a positive note, management stated that the RM2m associates contribution in 3QFY14 came mainly from the existing non-life insurance business of its associate company in Thailand. This reflects the strong profitability of this entity and implies that there is potential upside to its contribution, once it fully takes over the AirAsia-related businesses in 4QFY14. It is also encouraging to note that the momentum of the travel insurance business in Thailand picked up in Nov 2014, after the weak 2Q-3Q. Management thinks that the travel insurance premium will rise at a normalised rate of circa 20% in the next 2-3 years, which is higher than the 12-18% projected organic growth for the group’s overall travel insurance premiums in FY15-16.
What You Should Do
Stay invested in Tune Ins as the information revealed during the conference call points to strong earnings recovery in 4QFY14 onwards. In our view, the sweet spots for earnings growth would be the travel insurance business in Asia and Middle East, as well as the non-life insurance unit in Thailand. Another re-rating catalyst would be the potential M&A in Indonesia, which is expected to be concluded in 1H15.
Source: CIMB Daybreak - 19 November 2014
Target RM3.00 (Stock Rating: ADD)
The information we gathered from Tune Ins conference call was comforting after the company’s weak 3QFY14 earnings announcement last night. The 3QFY14 claims ratio was bumped up by two chunky fire claims, which were irregular in nature. Moreover, there are signs of recovery in the Thailand travel insurance business in Nov 2014, following the slump in 2Q-3QFY14. The brighter growth prospects for the travel insurance business in the region and the non-life insurance market in Thailand are re-rating catalysts that underpin our unchanged Add recommendation. Our DDM-based target price (cost of equity of 9.2%; long-term growth of 5%) is also intact.
What Happened
On 18 Nov 2014, Tune Ins’s new CEO, Junior N. Cho hosted a conference call on the company’s 3QFY14 financial results. The focus was on the reasons for the weak 3Q earnings and updates on the strategic thrusts going forward.
What We Think
The new information that we gathered from the conference call indicated that the underlying earnings trend in 3QFY14 was less gloomy than initial appearances. The rise in the claims ratio was not structural but partly caused by two big fire claims, which were irregular in nature. On a positive note, management stated that the RM2m associates contribution in 3QFY14 came mainly from the existing non-life insurance business of its associate company in Thailand. This reflects the strong profitability of this entity and implies that there is potential upside to its contribution, once it fully takes over the AirAsia-related businesses in 4QFY14. It is also encouraging to note that the momentum of the travel insurance business in Thailand picked up in Nov 2014, after the weak 2Q-3Q. Management thinks that the travel insurance premium will rise at a normalised rate of circa 20% in the next 2-3 years, which is higher than the 12-18% projected organic growth for the group’s overall travel insurance premiums in FY15-16.
What You Should Do
Stay invested in Tune Ins as the information revealed during the conference call points to strong earnings recovery in 4QFY14 onwards. In our view, the sweet spots for earnings growth would be the travel insurance business in Asia and Middle East, as well as the non-life insurance unit in Thailand. Another re-rating catalyst would be the potential M&A in Indonesia, which is expected to be concluded in 1H15.
Source: CIMB Daybreak - 19 November 2014
