AmInvestment Research said Tune Protect Group's strong tie-up with AirAsia enables it to leverage the expansion of the latter.
KUALA LUMPUR: AmInvestment Research has initiated coverage of Tune Protect Group (TPG), a diversified general insurer, with a fair value of RM1.80, which is 31% above its last traded price of RM1.37.
It said on Friday TPG is involved in various classes of general insurance business offering motor, fire, travel, medical, worker compensation, marine, personal accident 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% over the last five years (FY12 to FY16). This has contributed to a healthy underwriting surplus of the group.
AmInvestment Research said TPG's 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 inbound flights into 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.
“Several initiatives have been implemented to increase the take-up rate for travel insurance after the introduction of the opt-in ruling by MAVCOM. The take-up rate for travel insurance has since stabilised and is expected to gradually turn better with the assistance of the new initiatives,” said the research house.
The group has combined ratio of 83.2%, which is below the industry’s 88.1% in 2016. 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%.
“The recent approval from Bank Negara Malaysia to allow the setting up of a takaful window within its subsidiary provides Tune Protect Re with the opportunity to penetrate the Asean market for retakaful travel insurance business.
“We expect FY17 and FY18 returns on equity to be 15.3% and 14.8% respectively. The three-year historical average price-to-book value (P/BV) for the stock is 2.5 times.
“Based on the current market price, the stock is trading at 1.5 times to our FY18F BV/share. We initiate coverage on TPG with a Buy and a fair value of RM1.80 a share based on two times FY18 P/BV.
“The forward P/BV is in line with the average M&A P/BV of general insurance companies and circa one standard deviation below the stock's three-year historical average P/BV,” it said.
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