Buy (Maintained) Tune Ins (TIH MK) Beneficiary Of Potential Recovery In Tourism

Transcription

1 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Vol m Results Preview, Buy (Maintained) Financial Services - Insurance Target Price: MYR2.40 Market Cap: USD413m Price: MYR1.83 Beneficiary Of Potential Recovery In Tourism Macro Risks Growth Value Source: Bloomberg Avg Turnover (MYR/USD) Tune Insurance Holdings (TIH MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) m/0.21m Cons. Upside (%) 39.9 Upside (%) wk Price low/high (MYR) Free float (%) 41 Shareholders (%) Tune Group SB 25.1 AirAsia 16.2 CIMB SI II SB 14.1 Shariah compliant Kong Ho Meng kong.ho.meng@rhbgroup.com We maintain BUY and MYR2.40 FV (22x FY14F EPS). We expect commendable FY13 results, as AirAsia Group reported strong growth in passenger numbers. While near-term share price may remain rangebound, as Thailand s tourism industry is dampened by the country s political unrest, we still like TIH s fundamentals. We believe it stands to benefit from any potential recovery in the region s tourism industry. Seasonally strong quarter for travel insurance. We expect TIH to report 4Q13 online and reinsurance premiums of >MYR25m (3Q13: MYR26m), assuming a 26-32% take-up rate. AirAsia Group (AIRA MK, BUY, FV: MYR3.70) posted 28% y-o-y passenger growth, with: i) AirAsia Indonesia (34%), ii) AirAsia Thailand (26%), iii) AirAsia Malaysia (11%), and iv) AirAsia Zest (615%). AirAsia X (AAX MK, BUY, FV: MYR1.31) saw 22% growth over the same period. The management guided that 4Q is typically a stronger quarter for travel insurance. Near-term risks. We believe TIH may remain range-bound in the near term, as investors priced in the risk of weaker-than-expected 1H14 numbers due to the tourism slump caused by the prolonged political deadlock in Thailand. Based on media coverage, the Tourism Authority of Thailand reported lower tourist bookings by foreigners (due to travel warnings and rescheduled flights), as well as lower tourism contribution from Thai nationals who took time off to participate in demonstrations. Thailand is a significant market as it contributed 20% of TIH s travel insurance. TIH s share price has retraced by 10% since end-nov Outlook remains bright. Nevertheless, we believe TIH offers attractive propositions at current levels. TIH is still in a growth phase as it expands into new markets beyond Asean in efforts to become a global insurer. We expect the company to secure more tie-ups with airlines and travel providers. TIH is also expected to ride on the additional customer base through the growth of its current airline partners, AIRA and Cebu Pacific. Also, based on our observation, Thailand s tourism numbers historically rebounded quickly following major events like tsunami, pandemic outbreaks and riots. This suggests that TIH could benefit from a potential recovery in Thailand s tourism industry in the longer term. Maintain BUY and MYR2.40 FV, pegged to a 22x FY14 P/E. Our forecasts are unchanged at this juncture as we believe the long-term picture outweighs its near-term risks. Another risk to our valuations is a worse-than-expected claims ratio in its travel insurance business. So far, this is mitigated by AIRA s consistently high operating efficiency. Forecasts and Valuations Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F Net premium revenue (MYRm) Reported net profit (MYRm) Net profit growth (%) 66.1 (20.4) Recurring net profit (MYRm) Recurring EPS (MYR) DPS (MYR) Recurring P/E (x) P/B (x) na Dividend Yield (%) Our vs consensus EPS (%) (5.4) (1.9) 0.8 See important disclosures at the end of this report Powered by EFA TM Platform 1

2 JAN 1997 MAY 1997 SEP 1997 JAN 1998 MAY 1998 SEP 1998 JAN 1999 MAY 1999 SEP 1999 JAN 2000 MAY 2000 SEP 2000 JAN 2001 MAY 2001 SEP 2001 JAN 2002 MAY 2002 SEP 2002 JAN 2003 MAY 2003 SEP 2003 JAN 2004 MAY 2004 SEP 2004 JAN 2005 MAY 2005 SEP 2005 JAN 2006 MAY 2006 SEP 2006 JAN 2007 MAY 2007 SEP 2007 JAN 2008 MAY 2008 SEP 2008 JAN 2009 MAY 2009 SEP 2009 JAN 2010 MAY 2010 SEP 2010 JAN 2011 MAY 2011 SEP 2011 JAN 2012 MAY 2012 SEP 2012 JAN 2013 MAY 2013 Figure 1: AirAsia Group s and Cebu Pacific s international flights (quarterly passenger numbers) 4QFY13 3QFY13 2QFY13 1QFY13 4QFY12 3QFY12 2QFY12 1QFY12 4QFY11 Passenger carried (pax in '000) AirAsia Malaysia 5,913 5,263 5,510 5,168 5,206 4,749 4,903 4,821 4,855 AirAsia Indonesia 2,153 2,058 1,920 1,721 1,613 1,513 1,447 1,273 1,255 AirAsia Thailand 2,957 2,557 2,420 2,564 2,272 1,962 1,935 2,131 1,821 AirAsia Zest (Philippines) na na na na na AirAsia X Cebu Pacific, international flights na na na na na Total 13,584 12,253 11,549 10,144 9,762 8,861 8,847 8,874 8,571 Qoq growth AirAsia Malaysia 12% -4% 7% -1% 10% -3% 2% -1% 12% AirAsia Indonesia 5% 7% 12% 7% 7% 5% 14% 1% -10% AirAsia Thailand 16% 6% -6% 13% 16% 1% -9% 17% 13% AirAsia Zest (Philippines) 8% 421% na na na na na na na AirAsia X 15% 21% 1% 3% 5% 14% -13% 1% 7% Total AirAsia group 12% 7% 5% 4% 10% 0% 0% 4% 8% Cebu Pacific, international flights 0% -7% na na na na na na na Total 11% 6% 14% 4% 10% 0% 0% 4% 8% Source: AirAsia, AirAsia X, Cebu Pacific Figure 2: Monthly foreign tourist arrivals in Thailand ( 000) all modes of transport 3,000 2,500 2,000 Global recession, local riots Riots, political instability Major flood 1,500 SARS Tsunami H1N1 flu 1, Source: Bank Of Thailand Thailand s tourism industry relatively robust. Based on Figure 2, Thailand s foreign tourist arrivals demonstrated a quick recovery process after major events in the past like pandemic outbreaks, tsunamis and political riots. The current political situation in Thailand, which directly affects TIH s travel insurance business, may be a reason for TIH s range-bound share price in the near term. The political unrest may be prolonged, potentially dealing a blow to the tourism sector even during the Songkran festivals in April. However, we do not see this as a significant risk to TIH s long-term prospects. We believe TIH could benefit from any potential recovery in the region s tourism industry over the longer term. See important disclosures at the end of this report 2

3 Contributions from Malaysia continues to decline, in line with the company s regional expansion strategy Figure 3: TIH issued 2.09m online travel policies in 3Q13 (3Q12: 1.39m) 1% 6% 4% 6% 7% 6% 6% 8% 100% 6% 7% 5% 90% 6% 5% 5% 5% 5% 19% 80% 17% 21% 19% 20% 21% 17% 20% 70% 4% 6% 13% 5% 5% 8% 6% 7% 60% 14% 8% 12% 14% 14% 15% 17% 50% 14% 40% 30% 57% 20% 53% 54% 50% 48% 46% 47% 45% 10% 0% 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 Source: Company Malaysia Indonesia China Thailand Singapore Others Figure 4: AirAsia s punctuality (July 2012 Dec 2013) Figure 5: AirAsia s punctuality (Jan 2011 June 2012) Dec-13 70% Jun-12 Nov-13 76% May-12 84% Oct-13 79% Apr-12 Sep-13 Mar-12 78% Aug-13 74% Feb-12 79% Jul-13 Jan-12 Jun-13 79% Dec-11 66% May-13 Nov-11 73% Apr-13 81% Oct-11 Mar-13 80% Sep-11 Feb-13 84% Aug-11 85% Jan-13 87% Jul-11 Dec-12 Jun-11 78% Nov-12 76% May-11 84% Oct-12 84% Apr-11 85% Sep-12 85% Mar-11 82% Aug-12 Feb-11 Jul-12 78% Jan-11 Source: AirAsia 60% 80% 100% 60% 80% 100% Source: AirAsia See important disclosures at the end of this report 3

4 Financial Exhibits We believe TIH's topline growth will continue to be driven by the strong latent potential of online premiums. We believe that its TIMB subsidiary's revenue growth is not likely to pick up yet, as management is more focused on boosting its bottomline Profit & Loss (MYRm) Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F Premium income from insurance policies Reinsurance ceded (90.4) (104.7) (134.3) (133.1) (146.8) Net premium revenue Total insurance premium revenue Gain on securities and other fin assets Net investment income Total operating income Claims, maturities & surrenders (109.9) (99.6) (89.1) (92.9) (99.2) Agents' comissions (30) (31) (30) (36) (41) Management fees (24) (41) (52) (61) (72) Other operating costs (2) (4) (2) (2) (2) Cash operating costs (165.8) (175.0) (173.6) (191.7) (214.9) Total costs (166) (175) (174) (192) (215) Operating profit Other exceptional items - (10) Non recurring items - (10) Pre-tax profit Taxation (9) (10) (6) (10) (14) Minority interests (11) (9) (10) (16) (18) Profit after tax & minorities Reported net profit Recurring net profit We expect TIH s claims ratio to be better than the industry s, as we project an increase in the proportion of low claims online travel insurance premiums vs total premiums. Historically, its online claims ratio stands at 3.6% Key Ratios Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F Reinsurance ratio (%) Retention ratio (%) Claims ratio (%) Commission ratio (%) Expense ratio (%) Combined ratio (%) Underwriting margin (%) Investment yield (%) Liquidity ratio (%) EPS growth (%) 66.1 (20.4) Bv per share growth (%) Operating profit growth (%) 63.7 (1.0) See important disclosures at the end of this report 4

5 Financial Exhibits TIH's repayment of MYR133m in borrowings (for the business expansion via TIMB) is expected to result in zero gearing Balance Sheet (MYRm) Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F Cash at bank Total current assets Total investments Tangible fixed assets Intangible assets Premiums receivable Debtors & prepayments Other assets Total other assets Total assets ,015 1,166 1,301 Total current liabilities Technical provisions Long term insurance liabilities Total non-current liabilities Total liabilities Share premium account Revaluation reserve - (0) Other reserves - (28) (14) (14) (14) Total reserves Shareholders' equity Minority interests Total equity Key Ratios (MYR) Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F Operating profit growth (%) 63.7 (1.0) Net profit growth (%) 66.1 (20.4) EPS growth (%) 66.1 (20.4) Bv per share growth (%) DPS See important disclosures at the end of this report 5

6 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 SWOT Analysis Re-rating catalysts: Higher-than-expected take-up rate in the online business Better-than-expected improvement in general insurance (GI) claims ratio Higher-than-expected growth in GI premiums, with controlled levels of expenses and claims Potential acquisition opportunities New customer segment Tune Insurance Malaysia (TIMB) posting better-than-expected profitability Growing its highly profitable online insurance business segment Embarking on key strategies to improve the efficiency and underwriting profitability of TIMB Improving TIMB s capital adequacy ratio Opportunities to expand into new markets via M&As and through AirAsia's expansion Opportunities to improve takeup rates Expansion into other distribution channels Competition will intensify in tandem with liberalisation and detariffication Regulatory changes could affect agency and other operating costs Natural calamities and severe pandemics, eg SARS, could affect air travel and its take-up rates Small market share within the total GI market and agency force Highly dependent on the quality of service, both its own and that of AirAsia Claims expenses could be volatile P/E (x) vs EPS growth P/BV (x) vs ROAE 50 80% % 58% 47% 36% % % 3% -8% -19% % 0 P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs) Company Profile Tune Insurance Holdings (TIH), an investment holding company, is engaged in the provision of various general and life insurance products in the Asia-Pacific region. The company offers a range of online products, including travel, lifestyle protection, and guest personal accident insurance. See important disclosures at the end of this report 6

7 NR Recommendation Chart Price Close 2.4 Recommendations & Target Price Feb-13 May-13 Sep-13 Dec-13 Buy Neutral Sell Trading Buy Take Profit Not Rated Source: RHB estimates, Bloomberg Date Recommendation Target Price Price Buy Buy Buy Buy Buy Buy Buy Neutral Neutral Buy Source: RHB estimates, Bloomberg See important disclosures at the end of this report 7

8 RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This report is for the information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal or financial advice to independently evaluate the particular investments and strategies. This report may further consist of, whether in whole or in part, summaries, research, compilations, extracts or analysis that has been prepared by RHB s strategic, joint venture and/or business partners. No representation or warranty (express or implied) is given as to the accuracy or completeness of such information and accordingly investors should make their own informed decisions before relying on the same. RHB, its affiliates and related companies, their respective directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto, and may from time to time add to, or dispose off, or may be materially interested in any such securities. Further, RHB, its affiliates and related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies), as well as solicit such investment, advisory or other services from any entity mentioned in this research report. RHB and its employees and/or agents do not accept any liability, be it directly, indirectly or consequential losses, loss of profits or damages that may arise from any reliance based on this report or further communication given in relation to this report, including where such losses, loss of profits or damages are alleged to have arisen due to the contents of such report or communication being perceived as defamatory in nature. The term RHB shall denote where applicable, the relevant entity distributing the report in the particular jurisdiction mentioned specifically herein below and shall refer to RHB Research Institute Sdn Bhd, its holding company, affiliates, subsidiaries and related companies. All Rights Reserved. This report is for the use of intended recipients only and may not be reproduced, distributed or published for any purpose without prior consent of RHB and RHB accepts no liability whatsoever for the actions of third parties in this respect. Malaysia This report is published and distributed in Malaysia by RHB Research Institute Sdn Bhd ( M), Level 11, Tower One, RHB Centre, Jalan Tun Razak, Kuala Lumpur, a wholly-owned subsidiary of RHB Investment Bank Berhad (RHBIB), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Singapore This report is published and distributed in Singapore by DMG & Partners Research Pte Ltd (Reg. No N), a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group) and OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB, which in turn is a whollyowned subsidiary of RHB Capital Berhad). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. As of 10 February 2014, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd do not have proprietary positions in the securities covered in this report, except for: a) - As of 10 February 2014, none of the analysts who covered the securities in this report has an interest in such securities, except for: a) - Special Distribution by RHB Where the research report is produced by an RHB entity (excluding DMG & Partners Research Pte Ltd) and distributed in Singapore, it is only distributed to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd Hong Kong This report is published and distributed in Hong Kong by RHB OSK Securities Hong Kong Limited ( RHBSHK ) (formerly known as OSK Securities Hong Kong Limited), a subsidiary of OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB ), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. 8

9 RHBSHK, RHBIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company. RHBSHK, RHBIB and/or other affiliates may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the subject company. Risk Disclosure Statements The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. RHBSHK does not maintain a predetermined schedule for publication of research and will not necessarily update this report Indonesia This report is published and distributed in Indonesia by PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Thailand This report is published and distributed in Thailand by RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Other Jurisdictions In any other jurisdictions, this report is intended to be distributed to qualified, accredited and professional investors, in compliance with the law and regulations of the jurisdictions. DMG & Partners Research Guide to Investment Ratings Kuala Lumpur Hong Kong Singapore Malaysia Research Office RHB Research Institute Sdn Bhd Level 11, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia Tel : +(60) Fax : +(60) RHB OSK Securities Hong Kong Ltd. (formerly known as OSK Securities Hong Kong Ltd.) 12 th Floor World-Wide House 19 Des Voeux Road Central, Hong Kong Tel : +(852) Fax : +(852) DMG & Partners Securities Pte. Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore Tel : +(65) Fax : +(65) Jakarta Shanghai Phnom Penh PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia) Plaza CIMB Niaga 14th Floor Jl. Jend. Sudirman Kav.25 Jakarta Selatan 12920, Indonesia Tel : +(6221) Fax : +(6221) RHB OSK (China) Investment Advisory Co. Ltd. (formerly known as OSK (China) Investment Advisory Co. Ltd.) Suite 4005, CITIC Square 1168 Nanjing West Road Shanghai China Tel : +(8621) Fax : +(8621) Bangkok RHB OSK Indochina Securities Limited (formerly known as OSK Indochina Securities Limited) No. 1-3, Street 271 Sangkat Toeuk Thla, Khan Sen Sok Phnom Penh Cambodia Tel: +(855) Fax: +(855) RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL) 10th Floor, Sathorn Square Office Tower 98, North Sathorn Road,Silom Bangrak, Bangkok Thailand Tel: +(66) Fax : +(66)