Travel insurance weighs down Tune Protect’s 1H20, say analysts

THE results of Tune Protect Group Bhd (TPG) for the first half of its FY2020 ended June 30 saw earnings affected by weaker results from its travel insurance segment, due to lockdown measures for Covid-19.

According to AmInvestment Bank analyst Kelvin Ong, TPG’s 1H20 earnings of RM15 mil was a 48% decline year-on-year (yoy), due to lower net earned premiums arising from the decline in travel personal accident insurance caused by Covid-19 lockdowns, and a drop in fire and engineering insurance.

“TPG’s subsidiary Tune Protect Re, operating the travel insurance business, recorded a weak second quarter for FY2020. It was impacted by lockdown measures for air travel in its key markets due to the Covid-19 pandemic.

“Besides, the group recorded a weaker share of profits from its associate Tune

Protect Thailand and joint venture Tune Protect EMEIA, attributed to the lower demand for travel insurance,” said Ong.

However, MIDF Research analyst Hafriz Hezry shared that TPG has guided that the downtrend in the travel segment has bottomed out in April.

“(The travel segment) is seeing a moderate recovery in the following months, after the gradual opening up of the economy and lifting of restrictions on local travel,” he said.

Also noted was TPG had undergone a cost-cutting exercise, which saw Tune Protect Malaysia, the group’s general insurance subsidiary, posting a profit 18% higher yoy at RM20 mil.

“This was attributed to lower net commission expenses, improvements in claims experience and a decline in management expenses, such as advertising and marketing, staff costs, other administration and general expenses coupled with lower provisions for impairment of receivable,” said Ong.

Ong added that the outlook for the travel and general insurance business will continue to be challenging due to the Covid-19 outbreak.

“Despite the resumption of domestic air travel, consumers are likely to remain wary of travelling in the near to medium term. Also, with the second wave of the pandemic, most international borders for air travel remained closed, and this is likely to hinder the progress of recovery for travel insurance in the quarters ahead.

“Even though countries like the United Arab Emirates and Oman have made travel and health insurance mandatory for all inbound passengers, the opening of international borders for air travelling remains key for a stronger recovery in demand for travel insurance,” said Ong.

Ong also noted that the growth of premiums for general insurance is expected to remain muted, with the slowdown in the economy as a result of the pandemic.

MIDF Research upgraded its call for TPG to neutral from a previous sell call, with a static target price of 25 sen. This follows a 20% share price deterioration over the past month, according to the research house.

AmInvestment Bank maintained its sell call on TPG, with a static fair value of 25 sen, based on a FY21 price-to-book ratio of 0.3x, supported by a 5.6% return on equity.

At 12.05pm, TPG’s shares were last done at 31.5 sen, up 4 sen, with 7.06 million shares traded. – Aug 3, 2020

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