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.

1 comment:

cv said...

looking at the products of tuneprotect quite amazingly to say, it has breakdown into smaller yet affordable protection, such as theft, dental, death. i guess alot ppl still havent discover its flexibility. Still, tuneprotect main biz is in travelling insurance.
Thanks for the writeup on tuenpro.