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Upgrading My View On Tune insurance

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A few days ago, I briefly blogged on Tune Insurance, the tagline being "Good but pricey". Over the past few days, I have had more opportunity to delve deeper into the company's prospects. Despite my initial guarded-ness, I think the listing could be a most exciting new listing for first half of 2013.




From a team of 16 people at the start of 2011 to acquiring a general insurance company with approximately 1,000 agents and 15 branches throughout Malaysia. It is getting to the stage where AirAsia having achieved economies of scale in terms of passengers, they can now be a force in anything that is remotely linked to this captive group of growing passengers. 

I mean if they could charge for seatbelt or going to toilet, that would be a listable concern on its own. As for insurance, its a captive crowd, those who do not sign up travel insurance should be labelled as "criminally stupid". Now think for a second, other forms of insurance requires a huge sales force, this is not only captive, growing, necessary and internet based... just a tick on the box. Money upfront.


Tune Insurance online insurance business comprises primarily of Travel Protection Plan and  other online insurance products such as the AA Lifestyle Protection Plan and the Tune Hotels Lifestyle Protection Plan. Their online insurance business is now underpinned by exclusive long-term agreements with AirAsia. In addition they have entered into a contractual arrangement with Tune Hotels. They operate in 14 markets across 12 countries.





Tune Insurance will spend more than half of its proceeds to repay loans, 22.5% on strategic investments, 12.24% for working capital and the rest to pay listing expenses. Upon completion of the IPO, the market capitalisation of Tune Ins is expected to reach RM1.17 billion based on the indicative retail offer price of RM1.55. Tune Ins is also targeting a minimum dividend payout ratio of 40% of the company's net profit.

The key to the above paragraph, if you read into it: by paying down loans, it improves the net margins substantially, mind you their margins are already very rich (around 50%); on strategic investments, its basically to acquire another one or two small insurance outfits in Indonesia, Thailand and maybe the Philippines.

I like AirAsia as a fundamental driven stock, I still think AirAsia should notch at least a 50% capital appreciation within 1.5 years. As much as I like AirAsia, I think Tune Insurance is a better stock: there is assured growth for at least the next 3-5 years, deeper penetration into bigger growth markets in Indonesia, Thailand and the Philippines. Margins wise, how to beat Tune Insurance - usually when a business makes that kind of margins, there will sprout numerous competitors to eat at your market share and eventually drive down margins. However, in this case, the market is captive, unless you want to drag yourself to a few more steps in buying travel insurance from other brokers.

Tune Insurance is a better business model than AirAsia: just look at the capital requirements, largely a web based outfit with just some offices to latch onto other forms of insurance which may be correlated to the travelers such as foreign workers insurance, health insurance, etc. It rides on AirAsia's growth but without the accompanying growth in wages, FUEL/OIL hikes, buying and maintenance of planes!!!???





The first column is "Passenger Movements Market CAGR growth". The second is AirAsia's current market share. The third is AirAsia's market share CAGR. (CAGR=cumulative average growth rate).


Malaysia         12.7%       44.2%      15.4%
Thailand         10.9%       14.8%      17.2%
Indonesia        18.2%       3.7%       20.3%
Figure 1: Passenger Activity growth rates at major airports, 2009-2011.
(Source: Prospectus)

As you can see, while AirAsia's market share is substantial in Malaysia, there is still a lot of room to capture more in Thailand and Indonesia. Judging from the track record, nobody in Asia, maybe even the world runs a better budget airline. You may not like Tony Fernandes as a person but you got to hand it to him, with or without favours. I believe Thailand and Indonesia will be huge hubs for AirAsia as the platform for AirAsia's business model will only work well provided there is ample workers and a relatively low wage base. Attempting to start a budget airline in a "medium to high wage cost" center is a recipe for disaster, or a candidate for AirAsia to come in and whack you.

Hence despite the rich valuations in terms of PER, I can see that they are listing Tune Insurance the moment they had the chance, and they could have waited till it got bigger. I may be mistaken in thinking there was substantial selling by promoters when in actual fact, its a relatively low figure. 

Currently 80% of revenue is from online whiles claims amounted to just 3%. If you compare that to normal motor vehicle insurance, the claims are closer to 70%.

Pssst... Tony, free advice for you, ...  you can further juice up Tune Insurance by going into "money transfers, wiring with outlets at all airports". This will cut out the inconvenience for a lot of travelers, esp foreign workers. Watch out Western Union.

I think Tune Insurance should be bought and held for 2-3 years at least, should hit RM2.80 by then with OK dividend yields to boot. For its listing this Wednesday, I think it will trade between RM1.50-RM1.72. This is the kind of stock that most long funds will want to buy and lock up, provided they get in at a decent price (which will in turn cap the downside) - got yield and capital appreciation plus growth and low risk, even though its business model is totally reliant on AirAsia.






p/s I do not know Tony, ... have not been given a bribe .... or free flights .... or promised to be entertained by AirAsia stewardesses.


NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. I may already have shares in the above mentioned stock/s. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.




Love These Smart Alecky Mocking Snippets

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Movies are to be enjoyed but if you are funny, observant enough ... it can make for very funny mockumentary. I love dark or mean humour, to me funny is funny. Those who say low brow humour is the pits probably is too prim, proper, snobbish and stuck-up... and won't be welcomed in my playground.  Enjoy. 








US Equity Markets - Stars Are Aligned

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It is imperative to look at the US markets when we are trying to predict global sentiment. More so now as a lot of the quantitative easing for the past 3 years have been sitting mainly by the sidelines, in money market funds and bonds. Somehow, there is a congruence of factors aligning together over the 2 months. First, you have the definitive sustained easing by Federal Reserve until unemployment reaches 6.5%, which won't be likely to be achieved for at least another 6 months. Secondly, you have Draghi somehow pulling a rabbit out of thin air to revive the Euro and that brought about an important demand for the weaker country bonds, which is so crucial in the continuing restructuring and repairing of the EU from the financial mess. Thirdly, you finally have a significant change in government in Abe for Japan, someone who is firmly for a sustained easing policy, targeting an inflation rate of 2%. A new BOJ top gun will be appointed to ensure that target.

The 3 factors all helped to move funds into equity because its pointless to stay sidelined in a near zero interest rate environment. Funds seeking safe havens in the yen and other selected currencies such as Swiss franc have finally turned the other way as they do not see a need for that anymore. Now you have the carry trade going into high gear again - previously the carry trade was in yen based on the near zero interest rate, now the carry trade is also in yen but on the platform that you will be probably be paying back in a weaker yen 6 to 12 month down the road.

US Funds Flow Into Equity

Domestic equity funds experienced their largest monthly inflow in the past six years, according to preliminary figures tallied by the Investment Company Institute (see first chart). This follows six years during which equity funds experienced huge and almost relentless outflows.
Has the tide finally turned? Are investors now finally becoming bullish after four years of strong equity gains? Perhaps, but if this is the beginning of the return of bullish sentiment, it likely has a long way to go before it runs out of gas.


VIX which measures market risk is in a very stable low risk zone.






Commercial Property Recovery

The recovery in commercial real estate is now almost four years old. As the first chart shows, commercial property prices are up decisively in recent years. As reported by Costar, its Value Weighted Index was the first to turn up due to strength in the high-end sector of property market. But now the equal weighted index is starting to catch up, a sign that the recovery is broadening.
The second chart shows the price action for Vanguard's REIT fund, whose price has risen 215% from its March 2009 low. On a total return basis, this fund has trounced the S&P 500, gaining 287% vs. 142% since the March 2009 lows.
Thanks to panic-induced selling in late 2008 and early 2009, commercial real estate and related prices reached incredibly depressed lows. This represented one of the buying opportunities of a lifetime. If the economy merely avoids another recession, commercial real estate is likely to continue to deliver attractive returns relative to the almost-zero yield on cash.


Markets & Election Results

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Will the Share Market Rise or Fall if there is a Pakatan Victory?

by Koon Yew Yin

Quote from an angry Internet reader
If [the] market plunge(s), it will rise up again but if a country goes bankrupt, it is gone forever. I don't know why you can't get it in your brain unless your brain is always thinking of sex with your mistress.

During the last few weeks there have been increasing predictions from Barisan leaders emphasising that there will be a sharp fall in the share market should there be a Pakatan Rakyat victory.

The latest prediction by MCA leader Chua Soi Lek in a party event at Kepong argues that Malaysia will witness a ��huge financial disaster if Pakatan Rakyat comes to power in the 13th general election�.

This type of electioneering tactic aimed at frightening the electorate is dangerous and irresponsible. How can the MCA president be so confident as to openly declare that our stock market will drop to 500 points within a week if the opposition wins power?


Challenge to Dr. Chua Soi Lek
Let us subject his prediction to closer analysis. Firstly, it is not clear whether he stated that the KLCI will drop by 500 points or drop to 500 points.  Whichever is the correct version, his claim implies that anything from one to two thirds of the total share value of the KLCI will be wiped out due to the election result.

Now if this were to happen, the drop will be unprecedented in the history of share markets anywhere in the world. So far as I am aware, no modern national stock exchange has had such a sharp fall as a result of a national election outcome and I am sure it will not happen in Malaysia.

I am willing to place a big bet with Dr. Chua that his fears of a 500 point are unfounded and baseless.  The loser of the bet will have to donate an agreed sum of money to the other person�s preferred charity.   I hope he will agree to this and prove to be a man of his word.

Will the market rise on a BN victory
Not only should we discount the possibility of a sharp fall, but we should also � on the basis of stock market behavior elsewhere in the world � not assume that the Malaysian share market will automatically rise as the result of a Barisan victory. For example, on November 7th, immediately after Obama, the incumbent Democrat president was returned to power, the Dow Jones industrial average plummeted as much as 369 points, or 2.8 per cent, in the first two hours of trading. It recovered in the afternoon, but ended down 313, its biggest point drop for more than a year.

Various analysts that I have talked with have made the point that Chua Soi Lek is not a stock market expert. They argue that in trying to exaggerate the prospect of a market meltdown, Dr. Chua is contradicting the Barisan�s argument that the economy is fundamentally sound and resilient.  

At the same time, these analysts anticipate that there could be a market fall in the KLCI even if the Barisan is returned to power. They base this prediction on several factors:

1.       the BN through its control of EPF and other major government and government-linked investors has been supporting the market and propping up UMNO-linked counters such as Felda Global Ventures Holdings Bhd (FGV) which is struggling to hold on to its initial public offer price of RM4.55.  Without this pre-election support aimed at placating the Felda settlers and gaining their vote, FGV will definitely be trading below the IPO price.

2.       The European and American economies are still going through a phase of recovery. Although there has been an inflow of foreign funds into the Malaysian market, there could just as quickly be a reversal of financial flows.

Prediction of market rise with Pakatan victory  
What is likely to happen should there be a Pakatan victory? My prediction is that there will be a rise in the share market should there be no attempt at violence or a coup d�etatby the losers.  This is because of the following factors:



1.       The Malaysian economy has been under-performing all these years while under BN rule. We already should be familiar with the growth of GDP per capita of South Korea, Taiwan, Singapore and Malaysia. Since 1980 to 2011 we have been under performing every single one of those countries cited where once we we ahead of them.  Should we continue under BN rule, our economy is likely to continue to under-perform and our stock market will continue to stagnate not only in the short term after the elections but for the long term.

2. Foreign investors who have long been underweight in the Malaysian market due to Mahathir�s Disastrous Economic Model built around mega projects, crony capitalists as key players, and other distortionary policies will be attracted back into the market. As recently as in 2011, Bank of America Merrill Lynch noted that Malaysia remained a �big underweight� for investors in emerging markets. An underweight call is a recommendation for investors to reduce their investments in a particular security, asset class or, in this case, country. Malaysia also slipped from 14th place to dead last among the 15 countries studied by the investment bank, despite the roll out of big ticket Economic Transformation Programme projects.
There are other indicators that the market will not take fright but will rally on account of a Pakatan victory. As pointed out by an SME investor, they include:

1.       The fact that the opposition states of Penang, Selangor, Kedah and Kelantan have attracted more investment that the ten BN states by accounting for RM25 billion in investments comprising 53 per cent of Malaysia�s total investments of RM47.2 billion in 2010.

2.       If a major sell-down occurs in the Bursa as a result of a Pakatan victory, the nation�s economic institutions such as EPF, PNB, Khazanah and other GLCs would support the market.

3.       PAS has administered Kelantan for more than 20 years, and Kedah for five years. These two PAS state administrations have neither acquired nor appropriated property, assets or businesses belonging to non-Muslims.

Proposals for a sustainable market rise
Although I am optimistic that the market will rise on account of a Pakatan victory, it is necessary for the new government to act decisively when it comes to power.  I would like to propose the following measures to ensure that the post-elections market rise is sustainable:

1.       To form a business council with captains of the leading industries to find ways for economic improvement and expansion

2.       MACC directly under Parliament to look at illicit money outflows and recovery of the monies

3.       Investigate the way Petronas sells our national oil and to verify the rumour that it has a long term contract with a company which buys it at much lower than current prices.  



New Theme, Currency Realignment

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You know you will be trying to stop a moving train when G20 issues statements such as "we must avoid currency devaluations". Already, Japan has started to climb out of a coma and they saw immediate benefits in the stock market and more importantly money started to flow again. The contraction recession in Japan has been strangling the economy for more than 20 years. Finally, first time in my career I see them doing something effective. To think that I started my career at Nomura Securities, the biggest broker in the world then, it has certainly come full circle. 

What does currency realignment mean? Once a major currency realigns, it will attract a lot of dissension from other trading partners competing in the same grouping. Just when the euro seems to have found the elixir to rebound from a sustained weakness, now comes the yen's weakness. The two main partners to complain would be the US and EU, especially at the top of the production and manufacturing chain. Autos and electrical products manufacturers are the most directly affected.
Even major trading partners exporting to Japan will be complaining on the currency shift, but all will good. We need the realignment, we need money to move, we need to rebalance intra-competitiveness for a vibrant global economy. 
So how will it affect markets? In the initial phase, it will boost the country directly benefiting from the devaluation, in this case Japan. Already now, I am certain that the US does not want the yen to drop any further, but it will and that will cause the USD to weaken a little as well. This will also cause the euro to die on its strengthening bid. The secondary phase is that it will benefit all markets as devaluation brings forth more compelling valuations and inflow of funds to buy stocks. Capital flows will also move to rebalance and invest in countries whose currency are strengthening as a safe haven or to ride on the currency, but they will not benefit as much as the devalued countries.
Having said that, it should be a very vibrant and bullish 3 months ahead (except for Malaysia with its elections) as it won't be a totally zero sum game. Can all markets gain at the same time? Yes because there has been too much money and liquidity pumped into the system and the bulk of it is still residing in bonds and money market. The shifts in currency valuations, and the fierce pronouncement by Federal Reserve in keeping liquidity ample for quite a long time, and the willingness of the new regime in Japan to weaken the yen, plus the superhero feats by Draghi to drag the euro from oblivion to safety by "hope and prayer" alone ... all points to super bullish trend in global equities.
-----------------------------------------------
from Bloomberg:
The Group of 20 nations must avoid currency devaluations aimed at increasing competitiveness and promote more transparency in exchange rates, the U.S. Treasury Department�s top international official said.
�The G-20 needs to deliver on the commitment to move to market-determined exchange rates and refrain from competitive devaluation,� Lael Brainard, the Treasury�s undersecretary for international affairs, said at a news conference in Washington today. Brainard said �global growth is weak and vulnerable to the downside,� and strengthening demand must be a top priority for G-20 finance ministers and central bankers meeting in Moscow Feb. 15-16.
Enlarge imageTreasury Undersecretary For International Affairs Lael Brainard
Lael Brainard, under secretary of the Treasury for international affairs, said she supports the effort in Japan to end deflation and �reinvigorate growth. It will be important that structural reforms accompany macroeconomic policies to achieve these goals.� Photographer: Andrew Harrer/Bloomberg
Brainard said she supports the effort in Japan to end deflation and �reinvigorate growth. It will be important that structural reforms accompany macroeconomic policies to achieve these goals.�
The Group of Seven nations are considering saying they won�t target exchange rates when setting policy as they try to calm concern that the world is on the brink of a so-called currency war, two officials from G-7 countries said.

Exchange Rates

Finance officials from the world�s key industrial economies have drafted a statement on currencies now being reviewed by senior policy makers, they said on condition of anonymity. The current wording, which still may be changed, combines the traditional backing for market-set exchange rates with a new line that governments don�t direct fiscal or monetary policy at driving currencies, one aide said.
Japanese Prime Minister Shinzo Abe�s push for more aggressive monetary policy has raised concern abroad that his government is directly seeking to weaken the yen, something it denies.
Japan has been criticized for driving down the yen by officials from South Korea to Russia in the run-up to the G-20 meeting. Abe administration officials have said that they are focused on ending deflation, rather than seeking a specific level for the yen.
Haruhiko Kuroda, the head of the Asian Development Bank and a potential contender for Bank of Japan chief, said in an interview that the BOJ could usher in a growth spurt unseen in a generation by stepping up stimulus and ending deflation.

Currency Policies

Brainard, when asked whether the G-7 will release a statement on currency polices, said the group remains in close communication and she expects its members �will continue to adhere to the longstanding agreements that we have.� Those accords �importantly include a commitment to floating exchange rates, with very rare exceptions in cases that excess volatility or disorderly movements might warrant cooperation,� she said.
Brainard, who will attend the Moscow meetings, said China needs to �further boost household demand and reinvigorate the move to a market-determined exchange rate and interest rates.� She also said it�s important for Europe �to come together around a joint strategy that supports growth.�

The Essence of Being A Man United Fan

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Rakyat Untuk Malaysia

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Friends tell me I have been more political of late. I say, I haven't changed one bit. Malaysians are very cunning in that they would rather not let anyone know of their political leanings. Ask ourselves, why are we scared to say which party we support? Why is that kind of fear prevailing among us? When one side controls or owns the mainstream media, be it popular dailies or TV stations, that in itself is a powerful weapon. 50 years is a long time, how many more decades do we have? For this CNY holidays, talk to your relatives and friends, make sure they vote, I don't mind if they vote for BN but as long as they vote. Stand and be counted.

Some people say we are not certain of the opposition knows how to govern. Governing is not difficult. I am not saying PKR will be a wonderful government, but at least something different for a two party system to evolve. Even if PKR does a bad job, when/if BN returns they will at least come back as a "better alternative".

 ... but just look at the sacrifices, sufferings, humiliation, victimisation suffered by Anwar, Guan Eng and Kit Siang, just to name a few ... why are they doing what they do, for whom are they doing all that ... and if we still have the heart in us to just keep quiet and be a bystander, then for sure the country is going to the dumps. We cannot be selfish and let others do the fighting for us while we stay on the sidelines and reap the benefits while others are championing for our rights and justice. We have but one life, we have but one country, let's move forward together.


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