TUNEINS (5230) : Tune Ins Holdings Bhd - Impact of QZ8501 disappearance
Target RM3.00 (Stock Rating: ADD)
We were dismayed when we heard news that flight QZ8501 had lost contact with ground control. In the worst-case scenario of a crash, Tune will see minimal financial impact because (1) all claims will be borne by the reinsurer, (2) the reinsurance rate for 2015 has been locked in, and (3) we do not expect this to have a significant impact on AirAsia’s passenger growth. We retain our EPS forecasts and DDM-based target price (cost of equity of 9.2%, long-term growth of 5%). We still rate Tune as an Add given the bright prospects for the growth of its travel insurance (TI) business in the region and non-life insurance unit in Thailand.
What Happened
Indonesia AirAsia’s flight QZ8501 from Surabaya, Indonesia, to Singapore lost contact with air traffic control at 7:24am on 28 Dec 14. The aircraft is believed to have crashed into the Java Sea due to adverse weather conditions. A total of 162 people were on board, of which 155 were Indonesian nationals.
What We Think
Tune provided TI to some of the passengers on flight QZ8501 (estimated to be 23 to 31 people based on an assumed take-up rate of 15-20%). Hence, the company will be affected by the incident in three ways – (1) insurance claims, (2) a higher reinsurance rate following the incident, and (3) any slowdown in AirAsia’s passenger growth. However, the overall impact on Tune’s earnings will be minimal because (1) management has reconfirmed that Tune will not have to bear the claims as it reinsures out all these risks, (2) Tune has recently signed reinsurance contracts with its reinsurers for 2015 and, hence, the rate for 2015 has been locked in while the rate for 2016 will depend on the performance in 2015, and (3) our aviation analyst does not expect this to have a long-lasting impact on AirAsia’s passenger growth. Also, Tune did not insure the fateful aircraft. We estimate that every 1% pt slowdown in AirAsia’s 2015 passenger growth would reduce Tune’s FY15-16 net profit by circa 0.7-0.8%.
What You Should Do
We continue to advise investors to accumulate the stock as the incident will have a minimal financial impact on Tune Ins. The selldown on the stock following the incident is a buying opportunity.
Source: CIMB Daybreak - 30 December 2014
Target RM3.00 (Stock Rating: ADD)
We were dismayed when we heard news that flight QZ8501 had lost contact with ground control. In the worst-case scenario of a crash, Tune will see minimal financial impact because (1) all claims will be borne by the reinsurer, (2) the reinsurance rate for 2015 has been locked in, and (3) we do not expect this to have a significant impact on AirAsia’s passenger growth. We retain our EPS forecasts and DDM-based target price (cost of equity of 9.2%, long-term growth of 5%). We still rate Tune as an Add given the bright prospects for the growth of its travel insurance (TI) business in the region and non-life insurance unit in Thailand.
What Happened
Indonesia AirAsia’s flight QZ8501 from Surabaya, Indonesia, to Singapore lost contact with air traffic control at 7:24am on 28 Dec 14. The aircraft is believed to have crashed into the Java Sea due to adverse weather conditions. A total of 162 people were on board, of which 155 were Indonesian nationals.
What We Think
Tune provided TI to some of the passengers on flight QZ8501 (estimated to be 23 to 31 people based on an assumed take-up rate of 15-20%). Hence, the company will be affected by the incident in three ways – (1) insurance claims, (2) a higher reinsurance rate following the incident, and (3) any slowdown in AirAsia’s passenger growth. However, the overall impact on Tune’s earnings will be minimal because (1) management has reconfirmed that Tune will not have to bear the claims as it reinsures out all these risks, (2) Tune has recently signed reinsurance contracts with its reinsurers for 2015 and, hence, the rate for 2015 has been locked in while the rate for 2016 will depend on the performance in 2015, and (3) our aviation analyst does not expect this to have a long-lasting impact on AirAsia’s passenger growth. Also, Tune did not insure the fateful aircraft. We estimate that every 1% pt slowdown in AirAsia’s 2015 passenger growth would reduce Tune’s FY15-16 net profit by circa 0.7-0.8%.
What You Should Do
We continue to advise investors to accumulate the stock as the incident will have a minimal financial impact on Tune Ins. The selldown on the stock following the incident is a buying opportunity.
Source: CIMB Daybreak - 30 December 2014
