• MYR0.48 FV based on 0.6x FY24F P/BV. We are excited by Tune Protect’s(TPG) short-term and long-term growth prospects. The former should besupported by a seasonally strong 4Q, given the year-end travel season,while the latter is anchored by an improving product mix and its highlysuccessful partnership model for fast growth in new markets with limitedcost and competition risk. Given that a return to the black for the full year isalmost a done deal, we think dividend resumption may also be on the cards.

• Improving product mix in a vibrant growth space. TPG has set its sightson the millennial and Generation Z (Gen Z) audience within ASEAN, as it isa relatively underpenetrated space – studies show that non-life insurancepenetration rate is only at 1% for that demographic. To appeal to such anaudience, TPG places strong emphasis on the customer experience,evidenced by its stellar customer net promoter scores. Moreover, a shift inproduct mix away from the high-claims, low-retention commercial insuranceproducts towards higher-margin travel and motor insurance could lead tosustainable margin growth over the longer term.

• Partnerships for regional growth. TPG’s partners stretch across multipleindustries, but airline operators and regional insurers are prominentfeatures. Its list of airline partners has expanded to reduce its legacyreliance on AirAsia. The group also partners with established insurers suchas BaoViet in Vietnam to allow it to tap into Vietnam’s non-life insurancemarket while limiting competition risk. Overall, TPG’s partnership modelallows for fast scalability in new markets without necessitating heavy capex.Additionally, the model could also open up potential cross-sellingopportunities for further growth. The group’s ability to gain new partners isalso backed by its strong partner net promoter scores (NPS).

• Expecting a seasonally strong 4Q23. The year-end travel season shouldbode well for TPG, particularly as it had recently secured a partnership withVietnamese airline VietJet in 3Q23. This should boost the group’s toplineand bottomline, which we are forecasting to grow by 27% and 130% QoQ.Successfully ending the year in the black could allow the group to pay itsfirst dividend since FY18. By our estimates, a 40% payout ratio, as is thegroup’s dividend policy, generates yields of 3-4% over FY23-25F.

• Forecasts and FV. We expect TPG to book a 16% net profit CAGRbetween FY23 and FY25 – driven by greater insurance sales, improvedunderwriting margins from a more ideal product mix, and steady investmentincome. We ascribe a 0.6x P/BV target on FY25F BVPS to arrive at a FV ofMYR0.48, implying a 20% upside. Our P/BV is lower than the implied 1.2-1.9x for insurers under our coverage, given its smaller market cap and softerROE generation.

• Key downside risks include weaker-than-expected insurance sales,higher-than-expected claims and reinsurance costs, and execution risksfrom the partnership model. The group is also subject to political,geopolitical and regulatory risks, given its presence in multiple markets.

Source: RHB Securities Research - 19 Dec 2023