3Q24 Results Recap

Tune Protect achieved a performance turnaround with a net profit of RM5.9mn in 3Q24, compared to a net loss of RM9.8mn in 2Q24. This improvement was driven by i) a 5.0% QoQ increase in insurance revenue to RM100.2mn, primarily from the travel segment, particularly AirAsia and the Middle East, ii) better claims experience in the fire, engineering, cargo and PA segments, and iii) a lower expense ratio due to enhanced cost efficiency. Overall, the group recorded a positive underwriting result of RM6.1mn in 3Q24, compared to an underwriting loss of RM4.9mn in 2Q24. As a result, the combined ratio improved to 93.9% (vs. 105.2% in 2Q24).

Moving into 4Q24, we expect further QoQ improvement driven by the yearend peak travel period and cost discipline efforts.

Managing Claims and Motor Mix Within Profitable Segments

According to the General Insurance Association of Malaysia, the total net claims incurred ratio for the motor insurance class increased to 66.7% in 2023, up from 65.3% in 2022. Currently, we understand that Tune’s motor loss ratio is higher than the industry average. As such, the group aims to rebalance its motor portfolio by focusing on more profitable sub-segments, such as mid-to high-sum-insured motor and motorcycles. This strategy would allow Tune to raise its average premium level to align more closely with the industry average. Additionally, the group increased prices by approximately 4% for the private car segment in July 2024, which is expected to have a favourable impact on the motor claims ratio in 2025.

Leveraging on the Regional Travel Ecosystem

In tandem with the review of Tune’s business portfolio, the group will place greater focus on the travel business, which is its key competency. Thus far, the group has observed that tickets from its airline partners are increasingly being sold through indirect channels (39% pre-pandemic vs. 56% post-pandemic), corresponding with a relatively lower take-up rate (TUR). Moving forward, Tune Protect plans to increase TUR through price optimisation in selected markets and the launch of new products. We expect TUR for international short-haul flight direct channels to increase to approximately 20% (up from 15% currently) in FY25, driven by new product launches such as the Tune Protect Travel Gadget and bundled ancillaries.

Overall, we expect the contribution of travel revenue to increase to 36% in FY25, compared to 24.2% in FY23. Meanwhile, we forecast the combined ratio to improve to 93.9% in FY25 (vs. 102.8% in 9M24), driven by ongoing efforts to leverage the regional travel ecosystem and product innovation.

Impact

No change to our FY24-26 earnings estimates.

Valuation

Maintain Buy on the stock with an unchanged TP of RM0.48/share based on 0.65x CY25 PB.

Source: TA Research - 26 Dec 2024