LEVERAGE: Photo shows AirAsia group CEO, Tony Fernandes answering a question during a news conference. Tune Ins is expected to leverage its access to AirAsia and Tunes Companies’ other businesses to have a much wider customer reach as Tune Ins intended to offer a greater range of products beyond the two aforementioned group and include their own staff as well. — AFP photo
KUCHING: With its initial public offering (IPO) slated for February 22, 2013, Tune Ins Holdings Bhd (Tune Ins) is aiming to extend its travel insurance business beyond AirAsia Bhd (AirAsia) and Tune Hotels.
Tune Ins plans to raise RM222.2 million through its listing on the Main Market of Bursa Malayia. More than half of its IPO proceeds will be spent to repay loans while the remaining will be used on strategic investments, working capital and listing expenses.
According to Mercury Securities Sdn Bhd (Mercury Securities) analyst, Jack Chan, Tune Ins stated that it aimed to extend its travel insurance beyond the two, thereby expanding the customer base.
“Even though the business model offers an attractive proposition to third parties, it might be difficult for it to establish tie-ups with other partners, including other airlines,” Chan said, pointing out that the AirAsia link could serve as a double-edged sword as its future earnings relied very heavily on the low cost carrier’s performance.
Chan, during a telephone conversation with The Borneo Post, stated that Tune Ins, being a ‘proxy’ of AirAsia, would be affected by the growth of the airline. He believed that AirAsia’s prospects in the next three to five years would be very good as plans for regional expansion were being reiterated.
The insurance company’s total revenue remained very concentrated in Malaysia which the analyst believed was a growth story representing a huge upside potential instead of a concentration risk. Malaysia contributed up to 82.3 per cent of the total revenue of the company.
He believed that online sales of travel insurance would be the future for the business in the Asean region, emulating the situation in the US where online sales for travel insurance for 2010 grew 38 per cent from 2008 and nearly 25 per cent from 2009.
“Tune Ins has recorded impressive growths in profits in the past four years. The group’s net profit after tax has grown from RM17.1 million in 2009 to RM30.2 million which is equivalent to a compound annual growth rate of 20.6 per cent.”
The high growth was attributable to the fact that the company was the exclusive insurance product manager of AirAsia. Tune Ins’ percentage of net claims to net earned premiums had been dropping since 2009, a sign of improving risk management and better understanding of the market.
“This is definitely one of the driving factors behind its remarkable profit growth,” Chan explained.
He noted further that its general insurance segment was not doing very well and that 75 per cent of the company’s earnings were from travel insurance.
The company could leverage its access to AirAsia and Tunes Companies’ other businesses to have a much wider customer reach as Tune Ins intended to offer a greater range of products beyond the two aforementioned parties and include its own staff as well.
“We believe that Tune Ins will be able to capitalise on AirAsia’s fast growing business in Asia, particularly in Indonesia and Thailand,” Chan explained, noting that Tune Ins’ net margin was expected to improve by three to five per cent in the foreseeable future.