KUALA LUMPUR: CIMB Equities Research sees low profit growth visibility for Tune Protect’s travel insurance business in 2019 which was a drag on its net profit for the nine months ended Sept 30.
However, the research house said on Friday it was optimistic on the expansion of Tune Protect’s general insurance profit, as was reflected by the strong expansion in 9M18.
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“As such, we continue to rate Tune as a Hold. The upside/downside risks for our call are a pick-up/slowdown in its premium growth,” it said. It reduced the target price from 93 sen to 75 sen.
CIMB Research said although Tune Protect’s 9M18 net profit only accounted for 66% of its full-year forecast and 65% of Bloomberg consensus estimates, it deem it as in line with expectations in anticipation of a stronger net profit in 4Q18F (vs. 3Q18).
“This is because 4Q is seasonally the strongest quarter for Tune Protect as the pick-up in travelling activities towards year end will benefit its travel insurance business,” it said.
Net profit rose by only 2.1% on-year in 9M18, dragged down by the 5.8% on-year decline in the profit after tax (PAT) of its travel insurance business.
Conversely, its general insurance’s PAT increased 12.7% on-year in 9M18; we believe this was mainly due to lower claims ratio.
Gross written premium for its travel insurance (TI) business increased 6.3% on-year in 9M18.
However, the unit’s 9M18 PAT fell 5.8% on-year due to higher management expenses, which pushed up TI’s combined (claims plus cost) ratio from 59.6% in 9M17 to 64.4% in 9M18.
“We retain our FY18F EPS but cut our FY19-20F EPS by 2.7% as we increase the assumed tax rate from 10% to 12%. This is because Malaysia’s Budget 2019 states that Labuan’s tax ceiling of RM20,000 will be removed in 2019.
“As such, the profit from Tune Protect’s TI entity (about 60% of its net profit) in Labuan will be subjected to a tax rate of 3%, instead of a maximum of only RM20,000 before 2019,” it said.