Nov 15, 2016

Tunepro - 28% Upside Potential

Tune Protect Group (Stock Code: 5230)  Going In Tune
Share Price RM1.62 Target Price RM2.05 Upside +26.5%

Current valuation at 12.5x 2017F PE is attractive vs sector’s 15.6x, given Tune Protect’s stronger 2017-18 EPS CAGR of 9.4% and higher ROE of 17.4% vs the industry’s 6.2% and 13.2% respectively. The group is also expected to be better insulated from potential price competition from industry-wide de-tariffication as travel insurance is exempted from the de-tariffication process which only affects motor and fire insurance. Initiate coverage with BUY and target price of RM2.05.

tuneprotect data
Superior growth trajectory on the back of exclusive tie-up with AirAsia. Tune Protect registered an impressive 2010-15 net premium growth CAGR of 13.7% vs the industry’s 5.9%. The ability to ride on its exclusive tie-up with AirAsia and the low-base effect of its non-travel general insurance segments helped to sustain such compelling growth rates. 1H16 core profit growth of 14% yoy growth was driven largely by significantly stronger-than-industry net premium growth of 20.8% (industry: 3.8% yoy). Growth was seen across most key segments (travel: 9% yoy, motor: 25% yoy, fire: 17%
Opportunity to lock in at compelling valuations on sharp recovery in ROE. Tune Protect is trading at relatively undemanding 12.5x 2017F PE and 2.2x 2017F P/B, the lower end of the historical range (-1SD). This is despite ROE having recovered close to its peak of 19.0%. To recap, valuation has de-rated from the peak of 4.5x 2017F P/B and 27x 2017F PE, while ROE has de-rated from 19.2% to the low of 15% in 2015. However, despite ROE having recovered to 18.4% in 1H16, the market continues to accord a steep valuation discount which we believe is unwarranted. In comparison, general insurance companies like LPI Capital trades at a more expensive 2.90x FY17F P/B in spite of lower ROE of 16%. Tune Protect’s valuation could re-rate over the next few years as the group is better insulated from potential premium pricing competition emanating from industry-wide phased-in de-tariffication of motor and fire insurance. This is because travel insurance, which contributes to 40% of the group’s net earned premium, is not impacted by the de-tariffication process.

Blue sky scenario. Assuming the group can sustain current 1H16 net premium growth of 20.8% in 2017 vs our more conservative 2017-18 growth assumptions of 9.5%, 2017-18 EPS CAGR could rise to 25.2%, potentially giving rise to a Blue ky target price of RM2.30 (44% upside).

Initiate coverage with BUY; 28% upside. Our target price is RM2.05, pegged at 15.2x 2017F PE. We derive our PE multiple based on a 20% discount to Tune Protect’s most comparable peer – LPI Capital which trades at 19.2x FY17F PE. The discount factors in the potential risk of non-renewal of the exclusive agreements with AirAsia Group when they expire between 2022 and 2027.

Tune Protect: Key Financial Data:

tunepro financial data

Insurance service provider that offers life and property insurance products through its subsidiaries.

source: UOBKayHian