Tune Insurance provided travel insurance (TI) to some of the passengers on flight QZ8501, which is estimated to be 23 to 31 people based on an assumed take-up rate of 15 to 20 per cent.
KUCHING: The QZ8501 incident is likely to have minimal financial impact on Tune Ins Holdings Bhd (Tune Insurance), says the research arm of CIMB Investment Bank Bhd’s (CIMB Research).
According to the research house, Tune Insurance provided travel insurance (TI) to some of the passengers on flight QZ8501, which is estimated to be 23 to 31 people based on an assumed take-up rate of 15 to 20 per cent.
Hence, the company will likely be affected by the incident in three ways: insurance claims, a higher reinsurance rate following the incident and any slowdown in AirAsia Bhd’s (AirAsia) passenger growth.
“However, the overall impact on Tune Insurance’s earnings will be minimal because management has reconfirmed that the group will not have to bear the claims as it reinsures out all these risks,” CIMB Research said.
Tune Insurance has recently signed reinsurance contracts with its reinsurers for 2015 and, hence, the rate for 2015 has been locked in while the rate for 2016 will depend on its performance in 2015.
Furthermore, the research arm’s aviation analyst does not expect this to have a long-lasting impact on AirAsia’s passenger growth.
Also, it noted that Tune Insurance did not insure the fateful aircraft.
CIMB Research estimates that every one per cent slowdown in AirAsia’s 2015 passenger growth would reduce Tune Ins’ financial year 2015-2016 (FY15-16) net profit by circa 0.7 to 0.8 per cent.
“We continue to advise investors to accumulate the stock as the incident will have a minimal financial impact on Tune Ins. The selldown on the stock following the incident is a buying opportunity,” it said.
The research arm retained its earnings per share forecasts and dividend discount model-based target price (cost of equity of 9.2 per cent, long-term growth of five per cent).
All in, CIMB Research still rated Tune Insurance as an ‘add’ given the bright prospects for the growth of the group’s TI business in the region and non-life insurance unit in Thailand. In addition, the research arm retained its target price for Tune Ins at RM3 per share.