PETALING JAYA: Tune Protect Group Bhd is expected to benefit from the return of flights, with improving sentiment in the aviation space lifting investor sentiment on the general insurer.
Kenanga Investment Bank Bhd anticipates the group’s core travel insurance segment to pick up, although below pre-Covid levels due to the rising cost of flying.
This is evident when comparing the 4.2 million insurance policies issued via local and regional affiliates in FY2022 versus the 9.7 million policies issued in FY2019.
“After five quarters of consecutive losses, Q4 FY2022 turned profitable (RM558,000) as underwriting losses narrowed on improvements in combined ratios in addition to better investment returns as trading activities revitalised,” said the investment bank.
Tune Protect, a financial holding company providing underwriting and reinsurance services for non-life insurance products, made a net loss of RM12.1 million in FY2022.
Kenanga is optimistic that the group could report net profits of RM11.2 million for FY2023 and RM20.5 million for FY2024 respectively, noting this is far below their pre-Covid earnings in the RM45-50 million range.
The forecasted doubling of its earnings could attract high growth seeking investors.
“That said, its depressed stock price is due to its strong proximity to a prominent local flight operator and the lull in the aviation sector,” it said.
Tune Protect’s major shareholders are Tune Protect Sdn Bhd (15.8%) and AirAsia Bhd (13.7%), according to the company’s 2021 annual report.
The trimming of Tune Protect’s portfolio is also expected to bring benefits. The group’s underperforming commercial segment (marine, aviation cargo, transit) was identified as a notable cause for retention ratios to mostly linger below 70% compared to the peer average of 80%.
The group intends to exit this space by not renewing existing policies, which Kenanga reckoned would not be hurtful given its relatively small contribution (FY22: 16% of total gross written premiums but only 2% of total net written premiums).
“This could allow greater focus onto more vibrant segments such as personal accidents,” said Kenanga.
The group’s net written premium for this segment was RM94 million for FY2022, up from RM8 million in FY2021.
Kenanga values Tune Protect at 55 sen, with an ‘add’ call on the stock. The consensus rating on the counter is ‘buy’ with a fair value of 46 sen.
“As these elements are expected to recover in tandem with stronger economic movements, we believe the appetite for Tune Protect would as well,” said Kenanga.
At the market close today, Tune Protect’s share price was up 1.2% to 42 sen, giving it a market capitalisation of RM315.74 million.