Wednesday, October 19, 2016

Tune Protect: Selling insurance direct

The Tune group has done it before and it can do it better this time with another product (see article below on Thestar by BNM's governor) - this time insurance. Earlier I have written about Tune Protect and its business. Many people may not realise that back in early 2000s when Airasia started, one of its bigger differentiation as against MAS and others is its direct delivery channel of selling air tickets. MAS and other airlines which had legacy delivery channel back then - i.e. through travel agents were not able to react as fast as Airasia which was a "new kid" then.
Now, the group has been selling its insurance products through the current internet channel and I see this as the way to go for the future and a winner - if executed correctly. Direct channel especially for those companies that do not have legacy issues (such as agents) - they would be able to do better. Traditionally, one of the biggest issues for insurance is its high costs of delivery or distribution. It can be overcome with a better delivery channel as long as the products are explained well. In today's world, information for these services as long as they are frank and accurate would do better than through agents.

Tune Protect I can see in fact do better if it works on making its products easy to understand. In Malaysia, there are 2 types of insurance licenses - life and general. Tune has the latter but it can still do certain type of products like Personal Accident, travel, medical and health besides the typical motor and fire insurance.

I expect a major change in this industry when Bank Negara allows price competition.

Friday, October 14, 2016

Forget FBM KLCI as benchmark - for now

There are enough companies to invest in Malaysia and some of them I still consider cheap and attractive at this moment. This is the reason why I stay invested. However if one is to invest into Malaysia and use the FBM KLCI as the benchmark (I myself actually do), it may not be the right benchmark.

Typically, in the example of US stocks, one would use either S&P 500 or DJIA 30 stocks as benchmark.

Let me tell you why.

Just look at the list of companies as at 30 June 2016 and how much strength they will have moving forward in the near term.

    1. AMMB Holding - One of the banking stocks, challenging for banks nowadays with low interest rate environment and high debt / GDP ratio in Malaysia
    2. Astro Holdings - tough operating environment for Astro (I was right). Its IPO price was RM3 back in 2012. Now it is trading at below RM3.
    3. Axiata - it is getting tougher for telco in Malaysia and most of the mature countries where Axiata is trading in.
    4. British American Tobacco - even its manufacturing operation is shutting down. Just imagine, a solid stock like BAT having difficulties for the first time in many decades.
    5. CIMB - just like AMMB above, loan growth is slow, NPL cropping up slowly and worse its investment banking (usually mainstay) is not doing well for several years now.
    6. - just like Axiata and in fact could be worse than Axiata as it is exposed to just Malaysia which has a tough telco operating environment.
    7. Genting - slightly better but the business it is in is not getting easier as compared to the good old days.
    8. Genting Malaysia - hopefully, the theme park - Fox will bring some cheers in 2017.
    9. Hap Seng - probably the better performing stock in terms of performance but I am not so sure of its upside.
    10. Hong Leong Bank - another challenging one, but probably better than AMMB and CIMB.
    11. Hong Leong Financial - small significance as its weightage is very small.
    12. IHH Healthcare - good nice growth but probably very expensive - tightly held with low free float of less than 10%.
    13. IOI - palm oil stock is not that great as compared to perhaps 5 years ago.
    14. KLCC Prop - will have decent consistent growth.
    15. KL Kepong - another palm oil stock, same as IOI.
    16. Maybank - perhaps better than AMMB, CIMB but still another bank which is facing challenges in Malaysia - for growth.
    17. Maxis - same as and competing head on aggressively. Little or no growth.
    18. MISC - large portion of business dependent on oil and gas. Bad for last 2 years.
    19. Petronas Chemical - oil and gas related, tough now.
    20. Petronas Dagangan - a trading company, one of the better potential among the 30 companies.
    21. Petronas Gas - gas related, another one in tough operating environment.
    22. PPB Group - dependent on Wilmar which is largely operating in palm and edible oil industry. Not that bright in short run.
    23. Public Bank - one of the solid banks, but growth will not be good as before.
    24. RHB Bank - another bank, perhaps better than CIMB or even Maybank.
    25. SapuraKencana - oil and gas, one of the better surviving operator, but the keyword is surviving.
    26. Sime Darby - its 4 main operating businesses - properties, automotive, properties, plantation - all do not look bright.
    27. Telekom Malaysia - has good potential but seems not be able to manage well, all the while.
    28. Tenaga Nasional - the largest of the lot, and future seems promising now with the old IPP contracts out of the way.
    29. Westports - one of the better ones and still with good prospects.
    30. YTL Corp - future not that bright with its IPP (less prospects), other utilities and construction.
As you can see, the brighter prospects ones are like Westports, Tenaga and PDB. There are not much upside if one is to look at it. And if one is to benchmark your performance against KLCI, it perhaps may not be right.

Why has this happened in my opinion. Besides the performance and their outlook, many of the KLCI component stocks are government linked companies and it has been well supported by the large funds in Malaysia - i.e. EPF, KWAP, Khazanah, PNB and few more. As they have remain hugely invested, it is harder to do more with the investments in these companies.

This however does not mean there are no performing companies - just happened to be not many are from the KLCI companies.

Additionally, this reflects that most fund managers may have opinion that the Malaysian market is not cheap. This is true on the perspective of the large blue chip stocks. But as is most of the time, the more attractive counters are not these 30 companies but those that are valued at between RM500 million to RM5 billion.

Thursday, October 13, 2016

Tune Protect: The less volatile part of Airasia's business

Although I like Airasia - and still believe that it will grow more than average economic growth of the countries in Asian region, there is another company that may follow the growth of Airasia but has better cashflow. It is Tune Protect. I have in the past written an article on Tune Protect - then Tune Insurance. During then, I was not sure on the company as I was not able to imagine an insurance business which was newly formed but with such little claims.

I sincerely felt that it was quickly structured to go for IPO during then - still think that way and the pricing was not right. Of course at its latest traded price of RM1.57, it is ironically around the same IPO offer price (3-1/2 years ago) of RM1.55. Now, Tune Protect is a more mature insurance company and riding high with improved profitability over the 3 years period.

It has of course since moved on to offer several other products - including the motor, travel, medical and fire class insurance. The way I read its business strategy is it goes for small premium but highly profitable range of insurance products. The highest profitability is of course its travel insurance tagging along the sales of Airasia's tickets. Of course one has the option of not purchasing the insurance when buying flight tickets, but as more and more business travellers (especially) are opting for low costs tickets for short trips, I see travel insurance which is sold as an add-ons will continue to do well.

In the long run, I think Tune Protect will follow the growth trend of Airasia's revenue while it will continue to grow its other portfolio of insurance. Travel within the Asian region has been growing at much higher rate than GDP growth for the region - much due to China and India and as the percentage of middle income group is growing, it will still be a good growth number. Just look at the data here by Mastercard - many are markets for Airasia.

For investors who are concerned over Airasia's need for high capital expenditure due to plane replacements, one will not have that kind of concern over its insurance business. As a result of that, naturally Tune Protect may provide better dividends (as proven with 5 sen recent payment - see below) return than Airasia as its cashflow is much better. Further, its P&L numbers will also be more insulated from the fluctuations of currencies as opposed to Airasia.

Dividends for Tune Protect (last 3 years) has been strengthening
2014 - 3.86 sen / share
2015 - 4.04 sen / share
2016 - 5.00 sen / share

On its business segments which are not dependent on its travel segment (contribution from Airasia), I hope and think that the dynamism of Tune group will take opportunity of the internet landscape to grow its insurance business. I believe that the insurance industry has opportunity to change much just like where industries such as the transport (courtesy of Uber), air travelling (low costs airlines), finance (potential next wave of change), TV (or media, Netflix etc). My observation is that Tune Protect's products are sold differently as compared to the much traditional insurance companies.

At its current price of RM1.57 (RM1.18 billion market capitalisation), I am forecasting it to be trading at a good 10x PE as usually the best numbers will come in its 4th quarter where travel volume is the highest. With that multiple, it is definitely attractive especially for an above average growth business. Its PE Growth will be low (the lower the better and if any company with PEG of below 1, is considered very good) and with a good free cashflow, it is exciting.

Tuesday, October 11, 2016

Misleading statement on Gadang

There is no doubt that Gadang is a company on the run, however I would like to highlight misleading statement after misleading statement given by a well-followed guy.

Here is his statement:

This statement is as if Gadang has the right over the entire development at Kwasa Land. He says, if there is no market for houses and condominiums, Gadang will not build while the land continues to appreciate in value - utterly misleading.

Here is what the Gadang has won in its bidding.

Gadang has won bid over a 24.08 acre of land. The entire Kwasa Land is 2,330 acre of land. There is no doubt that from what is presented by Kwasa Land, it is a prime land but the piece is only 24.08 acre - not the entire development.

I am sure that the award from Kwasa comes with condition. Gadang will not have 20 years to develop the piece - I can vouch for that despite not needing to read anything from Gadang.

It does not matter how old the person is and if he has no intention to cheat - but the writing is very misleading.

I am sorry as I cannot take it this time.

Here is the details of the award, where is it mentioned of Gadang getting the entire development? If one is to write, it has to be with great responsibility.