The EPS recorded this quarter was 1.69 cents which brings our forecast for FY 2017 forward PE ratio to 15.63. The deletion from MSCI Small Caps is already taking a toll and weakened the stock further but we still find value in this stock. Below are the few reasons why we still remain positive for this stock.

Business Not Growing?

Our previous article on TUNEPRO got bashed with comments especially from klse.i3investor saying that people who fly Air Asia are cheapskates and they would never buy travel insurance ever. We found that this claim is worst than saying Malaysia is going to bankrupt.

The revenue numbers for TUNEPRO continues to grow and Q3 2017 recorded the highest revenue ever at RM 140 million and this just proved that the public continues to be aware that there is a need for travel insurance even though you are not flying with Air Asia. The fact that EPS does not follow merely has one reason in our view.

But first, just to list things out, the few setbacks from this quarter’s report are:-

1. Claims increased by about RM 600k
2. RM 12 million for reinsurance expenses
3. Management expenses of RM 2.6 million

I guess reinsurance is a major factor that caused the growth in gross premiums not translating itself to profits for the company. Reinsurance is a strange thing where it tests your tolerance as an insurance company towards the original premiums written.

Think of it as a hedging tool if you don’t plan to increase your exposure, you buy some reinsurance opportunities to low the risk and manage what you can handle. Smaller insurance companies see this problem early in the game but eventually with the growth of assets and higher buffer zones, less reinsurnace transactions are needed to be done.

Obviously, an explosion in new premium earn but without the key people behind managing it properly meant that most of the original written premium goes to waste where the money can’t be put to good use such as generating higher returns.

Again, this takes time and this is why insurance is a long term business. From hiring to right person to manage the portfolio to slowly decreasing the rate of reinsurance, this definitely isn’t a two quarters game.

Management expenses increases this is the part where money is well spent. Did you realize marketing had been stepped up recently for Tune Protect? Large billboards, TV spots are going on for marketing initiatives getting people to know the brand better. Since the customers shouldn’t only come from Air Asia, we think that ads will be beneficial even for others.

Other forms of general insurance would eventually benefit from a large-scale marketing campaign. A simple question survey shows that people have no idea the Tune Protect offers other form of insurance rather than travel. When the public gets accustomed to the available products, it is merely time when the business sees organic growth.

In the mean time, we recommend that you continue to accumulate on stock prices weakness in the coming months.

Our forecast for Q4 revenue to hit RM148 million with EPS coming in at 1.77 cents.

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