40 SHORT TERM TMarket Cap Avg Daily Turnover Free Float...

Insurance - Composite MALAYSIA April 1, 2013

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. CIMB Securities Limited has had an investment banking relationship with AIA Group within the preceding 12 months. Designed by Eight, Powered by EFA

Flying with a well-tuned insurer We view Tune Ins Holdings as one of the best insurance stocks in Malaysia due to its (1) regional exposure, (2) bright earnings prospects, (3) tie-up with the fast-expanding AirAsia, and (4) low claims ratio for the travel insurance business.

We are initiating coverage on Tune Ins with an Outperform rating based on the above reasons. Our target price is fixed at RM1.63, which is pegged to a 10% discount to DDM value. The key DDM parameters are 9% cost of equity as well as assumed growth rates of 7% for the interim phase and 4% in the long-term growth phase. For catalysts, it will capitalise on the swift expansion of AirAsia.

A unique business model... Tune Ins has a unique business model compared with other insurers in Malaysia. The company was started in 2009 as a distributor of travel insurance products via a tie-up with AirAsia. As Tune Ins does not have insurance licences outside Malaysia, its travel insurance businesses are underwritten by its local insurance partners, which reinsure part of these to Tune Ins’s reinsurance units in Labuan. In May 12, Tune Ins bought Oriental Capital Assurance to strengthen its operations in Malaysia.

...--> competitive edge

The above business model is expected to benefit Tune Ins on the back of (1) its regional exposure to 14 countries, (2) swift expansion of AirAsia, the leading low-cost carrier in Asia, (3) low claims ratio of only 3-4% for the travel insurance business, and (4) its focus on the high-growth segment of health insurance.

Banking on AirAsia growth AirAsia is still in expansion mode as it plans to add 60 aircraft over the next two years or 50% more on top of its existing fleet of 119 aircraft. Apart from swift in-market expansion, the new aircraft would cater to AirAsia’s venture into new markets, like the Philippines, Japan and India.

Bright earnings prospects We are projecting a healthy net profit growth of 17.8% in FY14 and 14.3% in FY15. This would be underpinned by the 15% expansion in gross premiums and a low claims ratio of 3-4% for the travel insurance business. Its general insurance business in Malaysia would benefit from the revamp to improve underwriting margins.

Notes from the Field

Winson NG, CFA

T (60) 3 2084 9686 E [email protected]

Company Visit Expert Opinion

Channel Check Customer Views

“What will be crucial in achieving the regional expansion are our unique competitive advantages.”

– Peter Miller, chief

executive officer, Tune Ins.

Tune Ins Holdings Bhd COMPANY NOTE TIH MK / TUNE.KL Current RM1.40 SHORT TERM (3 MTH) LONG TERM

Market Cap Avg Daily Turnover Free Float Target RM1.63 US$340.2m US$2.42m 27.9% Previous Target N/A RM1,052m RM7.50m 608.0 m shares Up/downside 16.4%

Conviction| |

Sources: CIMB. COMPANY REPORTS

91

94

97

100

103

106

109

1.20

1.25

1.30

1.35

1.40

1.45

1.50

Price Close Relative to FBMKLCI (RHS)

Source: Bloomberg

20406080

100120

Feb-13 Mar-13 Mar-13 Mar-13

Vo

l m

Financial Summary

Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F

Gross Premium (RMm) 0.0 145.8 331.9 358.4 387.1

Investment And Other Income (RMm) 0.40 15.20 29.31 31.55 33.63

Net Premium (RMm) 55.5 215.0 411.5 450.0 492.4

Net Profit (RMm) 28.40 41.50 67.92 80.00 91.45

Core EPS (RM) 0.20 0.11 0.10 0.11 0.12

Core EPS Growth 34.6% (44.7%) (9.7%) 6.6% 14.3%

FD Core P/E (x) 7.00 12.65 14.01 13.14 11.50

P/NB (x) NA NA NA NA NA

DPS (RM) - - 0.040 0.043 0.049

Dividend Yield 0.00% 0.00% 2.86% 3.04% 3.48%

P/EV (x) NA NA NA NA NA

P/BV (x) 9.89 7.90 2.94 2.59 2.28

Recurring ROE 171% 65% 29% 21% 21%

% Change In Core EPS Estimates

CIMB/consensus EPS (x) 1.16 1.11 1.06

1.40

1.63

1.28 1.45

Target

52-week share price range

Current

SOURCE: CIMB, COMPANY REPORTS

Tune Ins Holdings Bhd

April 1, 2013

2

PEER COMPARISON

Research Coverage

Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside

Tune Ins Holdings Bhd TIH MK MY OUTPERFORM 340 1.40 1.63 16.4%

Suncorp Group SUN AU AU OUTPERFORM 15,836 11.82 12.34 4.4%

QBE Insurance Group QBE AU AU NEUTRAL 16,836 13.51 13.11 -3.0%

Insurance Australia Group IAG AU AU NEUTRAL 12,362 5.71 5.20 -8.9%

AMP Ltd AMP AU AU NEUTRAL 15,898 5.21 5.11 -1.9%

AIA Group 1299 HK HK OUTPERFORM 52,750 34.00 34.88 2.6%

0

5

10

15

20

25

30

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Rolling P/NB (x)

AIA Group

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Rolling P/EV (x)

AIA Group

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

20

40

60

80

100

120

140

160

180

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Peer Aggregate: P/NB vs NB Growth

Rolling P/NB (x) (lhs) Value Of New Life Business Growth (after-tax) (rhs)

0%

2%

5%

7%

9%

11%

14%

16%

18%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Peer Aggregate: P/EV vs EV Growth

Rolling P/EV (x) (lhs) Life Embedded Value Growth (rhs)

Valuation

P/E (FD) (x) P/NB (x) P/EV (x)

Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14

Tune Ins Holdings Bhd 12.65 14.01 13.14 NA NA NA NA NA NA

Suncorp Group 18.72 15.19 13.42 NA NA NA NA NA NA

QBE Insurance Group 22.49 14.81 12.12 NA NA NA NA NA NA

Insurance Australia Group 34.90 14.20 13.14 NA NA NA NA NA NA

AMP Ltd 21.22 19.66 17.26 NA NA NA NA NA NA

AIA Group 17.50 18.46 16.21 21.58 16.52 14.31 1.66 1.48 1.45

Growth and Returns

Fully Diluted EPS Growth Value Of New Life Business Growth Life Embedded Value Growth

Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14 Dec-12 Dec-13 Dec-14

Tune Ins Holdings Bhd -44.7% -9.7% 6.6%

Suncorp Group 43.2% 23.2% 13.1%

QBE Insurance Group 6.0% 51.8% 22.3%

Insurance Australia Group 364.7% 145.8% 8.0%

AMP Ltd -6.2% 7.9% 13.9%

AIA Group 75.1% -5.2% 13.9% 36.3% 6.5% 10.8% 15.0% 12.2% 2.0%


Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

Tune Ins Holdings Bhd April 1, 2013

3

The revenue growth in

FY13-14 would mainly come

from the projected 15%

expansion in the gross

premiums for the travel

insurance business. The

growth would be faster in

FY13 due to full-year

contributions from the

newly-acquired Tune

Insurance Malaysia

compared to about seven

months in FY12.

Tune Ins is a composite insurer but the contributions from life insurance business are still small (less than 1% of gross premiums in 2012). The company does not provide detailed information on its life insurance business.

There is a lack of information required to construct charts for rolling P/NB and value of new life business growth.

Share price info

Share px perf. (%) 1M 3M 12M

Relative 4.8

Absolute 6.9

Major shareholders % held

Tune Money Sdn Bhd 55.9

AirAsia 16.2

EFAChartValnSmall1|

EFAChartValnSmall2|

Profit & Loss

(RMm) Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F

Revenue 54.4 158.4 264.0 292.4 321.5

Total Claims and Changes in Reserves (1.9) (43.5) (103.8) (109.2) (115.2)

Acq. Costs/Other Underwriting Exp.

Total Underwriting Result 34.9 53.4 65.9 77.2 88.0

Investment Income on Tech Reserve 0.0 0.0 0.0 0.0 0.0

Insurance Profit / (Loss) 34.9 53.4 65.9 77.2 88.0

Total Other Technical Income 0.4 15.2 29.3 31.5 33.6

Total Other Revenues 0.0 0.0 0.0 0.0 0.0

Total Operating Costs 0.0 0.0 0.0 0.0 0.0

Other Technical Income / (Loss) 0.0 0.0 0.0 0.0 0.0

Depreciation And Amortisation 0.0 0.0 0.0 0.0 0.0

Operating Profit 35.3 68.6 95.2 108.7 121.7

Total Pretax Income/(Loss) from Assoc. 0.0 0.0 0.0 0.0 0.0

Post-Tax Operating Earnings - Life/Other Business 0.0 0.0 0.0 0.0 0.0

Head Office Costs 0.0 0.0 0.0 0.0 0.0

Total Non-Operating Income/(Expense) 0.0 0.0 0.0 0.0 0.0

Net Interest Income 0.0 (10.0) (0.7) (0.7) (0.7)

Investment Income on Shareholders Fund 0.0 0.0 0.0 0.0 0.0

Other Income 0.0 0.0 0.0 0.0 0.0

Exceptional Items 0.0 0.0 0.0 0.0 0.0

Pre-tax Profit 35.3 58.6 94.5 108.0 121.0

Taxation 0.0 (10.0) (19.3) (19.5) (19.9)

Consolidation Adjustments & Others 0.0 0.0 0.0 0.0 0.0

Exceptional Income - post-tax 0.0 0.0 0.0 0.0 0.0

Profit After Tax 35.3 48.6 75.2 88.6 101.1

Minority Interests (6.9) (7.1) (7.3) (8.6) (9.6)

Preferred Dividends 0.0 0.0 0.0 0.0 0.0

Special Dividends 0.0 0.0 0.0 0.0 0.0

FX Gain/(Loss) - post tax 0.0 0.0 0.0 0.0 0.0

Other Adjustments - post-tax 0.0 0.0 0.0 0.0 0.0

Net Profit 28.4 41.5 67.9 80.0 91.4

Operating Ratios


Premium Retention Ratio (life & Health)

Benefits Ratio (life & Health)

Acquisition Expense Ratio (life & Health)

Admin Expense Ratio (life & Health)

Total Expense Ratio (life & Health)

Policyholder Dividends Ratio (life & Health)

Combined Underwriting Ratio (life & Health)

Underwriting Profit Margin (life & Health)

Operating Profit Margin (life & Health)

BY THE NUMBERS



4

The shareholders’ fund would

increase significantly in 2013

due to the initial public

offering on Bursa Securities,

which has raised a total of

RM222.2m for the company.

Balance Sheet

(RMm) Dec-11A Dec-12A Dec-13F Dec-14F Dec-15F

Fixed Assets 0 13 16 17 19

Intangible Assets 0 30 30 30 30

Other Long Term Assets 0 0 0 0 0

Total Non-current Assets 0 43 46 47 49

Total Cash And Equivalents 33 497 647 755 859

Trade Debtors 0 0 0 0 0

Other Current Assets 17 273 356 370 396

Total Current Assets 50 770 1,004 1,125 1,255

Creditors - Direct & Reinsurance Business 0 0 0 0 0

Provision For Claims Outstanding 11 440 541 591 647

Other Current Liabilities 18 100 118 142 164

Total Current Liabilities 29 540 659 733 810

Total Long-term Debt 0 132 0 0 0

Hybrid Debt - Debt Component 0 0 0 0 0

Other Liabilities 0 1 1 1 1

Total Non-current Liabilities 0 133 1 1 1

Total Technical & Other Provisions 0 0 0 0 0

Total Liabilities 29 673 659 734 811

Shareholders' Equity 20 108 358 406 461

Minority Interests 2 32 32 32 32

Total Equity 22 140 390 438 493

Life Embedded Value

Key Drivers


Industry gross premium grth (%) N/A N/A N/A N/A N/A

Gross Premium Growth (%) 27.6 287.4 91.4 9.4 9.4

Gross Premium Mkt share (%) N/A N/A N/A N/A N/A

Claims Ratio (%) 2.0 87.3 76.5 72.7 71.2

Net Commission Ratio (%) 31.2 17.2 14.7 15.1 15.3

Net Premium Market Share (%) N/A N/A N/A N/A N/A

Management Expense Ratio (%) 2.5 14.0 11.5 11.6 11.6

BY THE NUMBERS

Key Ratios


Net Premium Growth 28% 287% 91% 9% 9%

Operating Profit Growth (Life & Health) N/A N/A N/A N/A N/A

Value Of New Life Business Growth (after-tax) N/A N/A N/A N/A N/A

Life Embedded Value Growth N/A N/A N/A N/A N/A

Pre-tax Margin 64.9% 37.0% 35.8% 37.0% 37.6%

Net Profit Margin 52.2% 26.2% 25.7% 27.4% 28.4%

Effective Tax Rate 0.0% 17.1% 20.4% 18.0% 16.5%

Net Dividend Payout Ratio 0.0% 0.0% 40.0% 40.0% 40.0%

Return On Average Assets 90.7% 11.3% 8.1% 8.0% 8.2%

Net Gearing 252% 142% 224% 216% 216%

Financial Leverage 2.34 6.75 4.00 2.91 2.86

Equity / Assets 40.0% 13.3% 34.1% 34.6% 35.3%



5

Flying with a well-tuned insurer 1. BACKGROUND

1.1 A Malaysian insurer with regional aspirations

Initiating coverage with an Outperform call. We are initiating coverage on Tune Ins with an Outperform call and a target price of RM1.63. Our positive stance on the stock is underpinned by the following:-

A regional exposure with revenue generated from 14 territories, including those emerging markets, like Indonesia

A tie-up with AirAsia, which would enable it to ride on the airline’s swift expansion in the region

Bright earnings prospects

High margins from the travel insurance business

We see Tune Ins as one of the best insurance stocks in Malaysia as the above factors would translate into better growth prospects for the company in the medium term, compared to its peers in Malaysia.

Not an ordinary insurer. Tune Ins Holdings (TIH) offers a unique proposition to investors seeking exposure to the Malaysian insurance sector. TIH is not an ordinary insurance company although it does operate a “traditional” general insurance business in Malaysia through Tune Insurance Malaysia Berhad (TIMB) or formerly known as Oriental Capital Assurance.

Banking on the tie-up with AirAsia. What makes the company unique is its exclusive tie-up with AirAsia to promote travel insurance, which is called the Travel Protection Plan. This relationship benefits the company in the following ways:-

Exposure to the markets outside Malaysia, including Thailand and Indonesia

Ventures into new markets, including the Philippines, Japan and India.

Focus on travel insurance, which is the growth segment in the general insurance market

These are the key investment themes for Tune Ins as they cannot be easily replicated by other insurers in Malaysia, which only focus on the domestic market. For this reason, we expect Tune Ins to have superior growth prospects compared with its peers in Malaysia.

(Note: Tune Ins is a composite insurer with non-life (in Malaysia through Tune Insurance Malaysia Berhad and travel insurance via the tie-up with AirAsia) and life (AirAsia and Tune Hotels Lifestyle Plans) businesses. However, the contributions from the life insurance business are relatively small now, accounting for less than 1% of the group’s gross premiums in 2012.

As it is negligible at the moment, the company does not provide detailed information for the life insurance business. So, there is a lack of information to fill in the operating ratios table on page 3. For the same reason, we also cannot construct the charts for rolling P/NB and value of new life business growth on page 3.)

Table of Contents

1. BACKGROUND p.5

2. THE BUSINESS MODEL p.11

3. OUTLOOK p.16

4. FUTURE PLANS AND OPPORTUNITIES p.24

3. RISKS p.27

6. SWOT ANALYSIS p.29

7. FINANCIALS p.31

8. VALUATION AND RECOMMENDATION p.38

9. APPENDICES p.41


6

Figure 1: Corporate structure of Tune Ins Holdings

SOURCES: COMPANY

CIMB Group Holdings owns 25% of Tune Money, which in turn holds a 55.9% stake in Tune Ins. Based on this, CIMB’s effective stake in Tune Ins is about 14%. Another major shareholder of Tune Ins is AirAsia, which has shareholding of about 16.2%.

1.2 About Tune Insurance

Key businesses. The group is an insurance company that underwrites both general (directly and via reinsurance) and life insurance products (via reinsurance) across the Asia Pacific region. It is operating two core businesses – (1) an online insurance business through which it sells insurance products to customers of AirAsia and Tune Hotels, and (2) an established general insurance business in Malaysia through its 83.3%-owned subsidiary Tune Insurance Malaysia Berhad (TIMB), previously known as Oriental Capital Assurance (OCA) (please refer to Figure 1 for the corporate structure). The group’s reinsurance businesses are carried out through Tune Money Life Re and Tune Money General Re, which generates reinsurance income from the group’s tie-up with AirAsia.

Partnering AirAsia and Tune Hotels. The group’s travel insurance business is supported by its exclusive agreements with AirAsia and its related companies – for 10 years until 2022 for AirAsia and AirAsia Japan, for 15 years until 2027 for PT Indonesia AirAsia, AirAsia X and AirAsia Inc and for five years until 2017 for Thai AirAsia Co. Through the tie-up, it issued 5.6m policies in 2011 and 6m policies in 2012 to AirAsia customers. Tune Insurance’s products are offered to AirAsia’s customers during the air ticket booking process. The group also has a similar arrangement with Tune Hotels for 10 years until 2022, marketing its products to the latter’s hotel guests.

About the Travel Protection Plan. One of the key businesses for the company is the offering of the Travel Protection Plan (TPP) via the tie-up with AirAsia. TPP provides coverage for losses arising from personal accidents, medical and evacuation, emergency medical evacuation, mortal remains repatriation, travel inconvenience such as flight cancellation or loss or damage to baggage and personal effects, flight delays and on-time guarantee. The on-time guarantee compensates the customers of AirAsia for any delay in AirAsia flights beyond two hours from the scheduled time of departure.


7

Banking on AirAsia’s network. In 2011, AirAsia carried a total of approximately 29.8m customers, of which 21.7m were in the markets where Tune Insurance offers travel insurance products and of which 26.5% were covered by its Travel Protection Plan. As well as being offered as part of a customer’s online booking process when they buy tickets to AirAsia flights, the company’s Travel Protection Plan is available through selected travel agents in Malaysia and Indonesia.

During the process of purchasing AirAsia tickets, the customers must decide whether or not to purchase the company’s Travel Protection Plan. Without the incremental cost of approaching customers to buy its travel insurance products on a stand-alone basis, it is able to offer its products at competitive pricing.

Figure 2: Example of the sale of Tune Insurance’s products on AirAsia’s website

SOURCES: AIRASIA WEBSITE


8

Figure 3: Tune Insurance products are also offered to the customers of Tune Hotels

SOURCES: TUNE HOTELS WEBSITE

1.3 A newly-listed company

Listed in Feb 13. Tune Ins was listed on Bursa Securities on 20 Feb 13 at a price of RM1.35 for both institutional and retail offerings. The initial public offering (IPO) offered a total of 210.2m shares in Tune Ins to investors, comprising a public issue of 143.4m new TIH shares (issue shares) and an offer for sale of 66.9m TIH shares from existing shareholders (offer shares).

The details of the IPO are as follows:-

An institutional offering of 102m issue shares and 66.9m offer shares to local and foreign institutions

A retail offering of 41.3m shares

The IPO raised gross proceeds of RM222.2m, which would be used for the following purposes:-

RM133m for repayment of borrowings

RM27.2m for working capital

RM50m for strategic investments

RM12m for listing expenses

1.4 The key milestones

Short history but good progress. Although Tune Ins has only been in operation for four years, it has made progress in its business undertakings, as shown in the following key milestones:-

2009

Travel protection plans were offered in Malaysia, Thailand, Indonesia, Singapore, China and Macau. The company managed to underwrite a total of 4.1m policies during 2009


9

2010

Travel protection plans were offered in Hong Kong and Australia

The group launched “On-Time Guarantee” benefit of compensation for AirAsia flight delays beyond two hours

It expanded its management team in step with growth plans

Total policies underwritten were 4.9m in 2010

2011

Travel protection plans were offered in the Philippines, Cambodia, Laos, Vietnam and New Zealand

Geographical coverage extended to a total of 13 countries and territories

Lifestyle protection plan offered to AirAsia and Tune Hotels customers

Dedicated customer experience team was established to manage all insurance-related enquiries

Total policies underwritten were 5.6m in 2011

1H2012

Travel protection plans were offered in Japan and India

Geographical coverage extended to a total of 14 countries and territories

The group further enhanced its online capabilities, offering travel insurance coverage for AirAsia’s “fly-thru” option

It integrated insurance into the “AirAsia simplified WAP” application, which enables customers of AirAsia to purchase travel insurance via tablet and mobile phone

Total policies underwritten were 3m in 1H2012

1.5 Products for the online insurance business

Product offerings for the tie-ups with AirAsia and Tune Hotels. The following are the products offered by Tune Ins’s online insurance business through the tie-ups with AirAsia and Tune Hotels:-

AirAsia INSURE Travel Protection Plan

Offered to the customers of AirAsia on flights originating from 14 countries and territories

Sold through AirAsia’s website, mobile platform and selected travel agents in Malaysia and Indonesia

Coverage for personal accidents, medical and evacuation, emergency medical evacuation, mortal remains repatriation, travel inconvenience, flight delay and on-time guarantee

AirAsia INSURE Lifestyle Protection Plan

Offered to customers of AirAsia in Malaysia, Thailand and Indonesia

Sold through the company’s local insurance partners and marketed under the AirAsia brand

Coverage for death and cancer, accidents and hospital costs

Its local life insurance partners cede a portion of the underwriting risks to RGA Global, which in turn cedes its risks to Tune Money Life Re

Tune Hotels Lifestyle Protection Plan

Offered to the customers of Tune Hotels in Malaysia


10

Sold through its local insurance partners, marketed under the Tune Hotels brand

Coverage for life, accident and health insurance

Tune Hotels Personal Accident Plan

Offered to the customers of Tune Hotels in Malaysia and Indonesia

Sold through the company’s local insurance partners and marketed under the Tune Hotels brand

Coverage for personal accidents and medical expenses

AirAsia Expedia

Launched in Sep 2012

Sold through Expedia’s websites in Malaysia and Thailand under the brand of “Tune Insurance” and “Expedia”

Coverage including personal accidents, travel, medical, personal liability, home care benefits and travel assistance services, etc

1.6 Acqusition of an insurance business in Malaysia

Since inception, Tune Ins has been operating through its reinsurance entities with revenue generated from the tie-ups with AirAsia and Tune Hotels. In May 2012, it took a step further by acquiring an established general insurance company, Oriental Capital Assurance or OCA, which was subsequently renamed Tune Insurance Malaysia Berhad (TIMB). It had more than 800 agents and 16 branches throughout Malaysia as at 31 Jul 12.

TIMB is a full-fledged general insurer that underwrites all classes of non-life insurance, including the followings:-

Individual coverage

Travel insurance houseowner, householder insurance

Motor insurance

MediDent Dental

Personal accident

Commercial coverage

Foreign workers insurance

Fire insurance

Marine cargo

Engineering insurance

Others including public liability, employer’s liability, comprehensive general liability, professional indemnity, workmen’s compensation, all risks, burglary, fidelity guarantee, money, plate glass

Tune Ins bought the 83.3% stake in OCA for RM163.6m, which translated into a P/BV of 1.22x. OCA recorded a net profit of RM10.2m in FY10 and RM26.3m in FY11.

TIMB, which is now 83.3%-owned by Tune Ins, had a 2% market share in Malaysia’s non-life insurance market with total written premiums of RM154.9m in FY10 (source: Insurance Annual Report and Statistics 2011, Bank Negara Malaysia, the latest available information on Bank Negara Malaysia’s website). As shown in the following chart (Figure 4), motor insurance was the biggest segment, accounting for 54.5% of TIMB’s gross premiums in 2010. This was followed by marine and aviation’s (MAT) 25.2% and fire’s 9%. The proportion of medical insurance was small at only 4.2% of the total gross premiums but we


11

expect this to expand as it would be underwriting part of (about 30%) Tune Ins’s travel insurance for its tie-up with AirAsia.

Figure 4: The breakdown of TIMB's 2010 gross direct premiums

Title:

Source:

Please fill in the values above to have them entered in your report

MAT25.2%

Contractors2.6%

Fire9.0%

Medical4.2%

Motor54.5%

Liability2.1%

Workmen0.3%

Miscelleneous2.1%

SOURCES: BANK NEGARA MALAYSIA

1.7 In control of the travel insurance business in Malaysia

Apart from establishing a more diversified general insurance business, the acquisition would enable Tune Ins to underwrite all of its travel insurance businesses in Malaysia. As it did not have an insurance licence in Malaysia previously, it had to rely on its local insurance partner, which ate up part of the company’s businesses.

2. THE BUSINESS MODEL

2.1 A Malaysian insurer with regional aspirations

The only regional player in Malaysia. Tune Ins Holdings (TIH) offers a unique proposition to investors seeking exposure to the Malaysian insurance sector. While all the insurance companies in Malaysia are focusing on the domestic market, TIH has exposure to 14 territories, thanks to its tie-up with AirAsia and the unique business model.


12

Figure 5: The business model for Tune Ins’s online insurance business

SOURCES: COMPANY REPORT

The above diagram illustrates the business model for Tune Insurance’s online insurance business. In simpler terms, the flow is as follows:-

Tune Ins teams up with the host/online partner (AirAsia, Tune Hotels and Expedia) to offer insurance products on their websites.

When the customers purchase the policies, they will be underwritten by Tune Ins’s local insurance partners (except in Malaysia where policies are directly underwritten by Tune Insurance Malaysia).

Its local insurance partners reinsure some of the risks/premiums on a predetermined basis to the company’s reinsurance entity, Tune Money General Re (TMGR) or Tune Money Life Re for the life insurance business. This is how Tune Ins captures part of the businesses.

The local insurance partners pay the host for the commissions generated from the business.

We understand that the local insurance partners pay/reimburse AirAsia (1) a commission at the maximum regulated commission rate up to a maximum of 30% of the gross premium of its Travel Protection Plan, and (2) an amount equivalent to 5% of the gross premium of its Travel Protection Plan for marketing expenses incurred by AirAsia for the purposes of promoting the products.


13

With respect to the AA Lifestyle Protection Plan, the revenue received by the company from its local insurance partners is shared between Tune Ins and AirAsia based on a pre-determined formula.

The relationships between Tune Ins and the local insurance partners are protected by distribution agreements.

Figure 6: Tune Ins’s local insurance partners in various countries



14

Figure 7: Tune Insurance’s products in various markets


2.2 A passport to the overseas businesses

Only with the above model can Tune Ins secure businesses from overseas markets as it does not have insurance licences outside Malaysia. In FY11, only 55% of its policies were booked in Malaysia while the remaining 45% were from Thailand (19%), Indonesia (15%), Singapore (5%), China (4%) and others (2%). The proportion for Malaysia’s policies even dropped to 52% in 1HFY12 due to increases in Thailand (to 20%), China (5%) and others (4%). No other Malaysian insurer has overseas contributions as large as Tune Ins’s.


15

Figure 8: Geographical breakdown of Tune Insurance's policies for FY11

Title:

Source:


Malaysia, 55%

Thailand, 19%

Indonesia , 15%

Singapore , 5%

China , 4% Others , 2%

SOURCES: COMPANY REPORTS

Figure 9: Geographical breakdown of Tune Insurance's policies for 1HFY12

Title:

Source:


Malaysia, 52%

Thailand, 20%

Indonesia , 14%

Singapore , 5%

China , 5%Others , 4%

SOURCES: COMPANY REPORTS

The gross premiums from the customers of AirAsia under the Travel Protection Plan contributed about 11.7% in FY09, 15.1% in FY10 and 18.4% in FY11 of the pro forma gross earned income of the group (inclusive of Tune Insurance Malaysia). Meanwhile, the commission and marketing expenses related to this accounted for 14.5%, 18.4% and 20%, respectively, of the group’s pro forma expenses during the same period.

2.3 A unique business model competitive edge

We believe that the unique business model gives Tune Ins a competitive edge relative to its peers in Malaysia given:-

Regional exposure – riding on the tie-up with AirAsia, Tune Ins is underwriting insurance policies in 14 markets, although all of these, except for Malaysia, are undertaken in partnership with local insurance providers. Exposure to lower-penetrated markets, like Indonesia, will be a boon due to the better growth prospects in the longer term there compared with Malaysia’s non-life insurance sector. For instance, it was stated in the prospectus that the penetration for insurance was only 0.6% in 2011 for Indonesia while the density rate was US$88. More positively, the number


16

of countries is still increasing, riding on AirAsia’s expansion into new markets.

Lower claims ratio – the claims ratio reported by Tune Ins (mostly for its Travel Protection Plan) was relatively low at 2-3% in FY10-12. As we believe that this is the nature of travel-related insurance, we expect the claims ratio to stay relatively low (below 5%) in the longer term. This is a more lucrative business compared with motor and fire insurance, which had claims ratios of 76.2% and 38%, respectively, in 2011.

Focus on fast-growing health insurance – we believe that the health insurance segment will grow faster than other classes of non-life insurance, like motor and fire, due to the (1) escalating healthcare costs, (2) greater awareness of the importance of this type of coverage on top of life insurance, and (3) the growing trend of buying medical/personal accident insurance for special purposes, like travelling. Most of the policies under Tune Ins’s Travel Protection Plan are for this class of business and, hence, it would benefit from the swift expansion in this segment.

Harnessing its capabilities for online sales – the online insurance business is the “bread and butter” for Tune Insurance but only an “add-on” for most other Malaysian insurance companies. As such, Tune Insurance has been investing more resources in this, making it superior to its peers in this area. Hence, it is in a better position to capitalise on the growing trend of purchasing insurance products over the Internet. With its strong capabilities in this area, Tune Insurance could also market other types of insurance, like fire and motor coverage, over the Internet in the future.

3. OUTLOOK

Given its business model, the outlook for Tune Ins hinges on the prospects for (1) air travel (or more specifically low-cost carriers (LCCs)) in the Asia Pacific region, (2) AirAsia, and (3) the general insurance sector, primarily in Malaysia. We envisage bright prospects for LCCs and AirAsia, which bode well for Tune Ins’s online insurance business. While the general insurance sector may not be growing at a fast pace, we see better prospects for health/medical insurance.

3.1 In the region of growth

We concur with independent aviation consultant Strategic Airport Planning’s (S-A-P) view that air travel in Southeast Asia will experience one of the fastest growth trends in the world. S-A-P is an aviation consulting firm which produced a report on the aviation sector that was included in the prospectus for the listing of Tune Ins.

S-A-P expects Southeast Asia to enjoy strong long-term growth rates due to the following favourable reasons:-

Proximity to countries with huge populations and strong economic growth, like China and India

Location on major trade routes – Southeast Asia is well-positioned between Europe/Middle East and the Pacific region as well as between North and South Asia, which have big population bases and emerging economies

Proximity to China

Proximity to Australia and Japan

Location between South Asia and China

Alternative to land transport with the increased affordability of air travel given the emergence of low-cost carriers

Liberalisation of aviation agreements


17

Initiatives by several countries to develop tourist infrastructure, for example, the integrated resorts (with Universal Studio) in Singapore and LegoLand in Malaysia

Increased urbanisation

According to S-A-P, the revenue passenger kilometre (RPK) in the Asia Pacific region surged 92.1% from 2001 to 2011 while it rose 69.2% in Western Europe in the same period. Asia Pacific’s passenger traffic, as measured by RPK, surpassed that of North America in 2011.

RPK in the Asia Pacific region is expected to deliver strong growth from 2011 to 2030 at a CAGR of 7%, cementing its reputation as one of the fastest-growing regions in the world. Southeast Asia is one of the world’s most dynamic regions for air travel. RPK within Southeast Asia is projected to register CAGR of 7.4% from 2011 to 2030.

The expected healthy growth in air travel in Southeast Asia will benefit Tune Ins as about 94% of its insurance policies were secured in this region, although there is the potential for it to expand to other countries, like the Philippines, Japan and India.

Figure 10: Revenue passenger kilometres of various regions

_____________

Unit: RPK millions.

Source: Euromonitor International from International Civil Aviation Organization (ICAO), United Nations,

World Bank, and national statistics, 2012.

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Europe

North America

Asia Pacific

SOURCES: EUROMONITOR INTERNATIONAL FROM INTERNATIONAL CIVIL AVIATION ORGANISATION (ICAO), UNITED NATIONS, WORLD BANK and NATION STATISTICS 2012

3.2 Global air travel growing at twice the GDP rates

Historically, air travel activity has shown a strong statistical relationship with overall economic activity, as measured by the gross domestic product (GDP). Over the last four decades, world airline activity grew at average rates per annum that were approximately double those of world GDP. From 1971 to 2011, world GDP posted a CAGR of 3.1% while world airline RPKs delivered approximately twice the rate at a CAGR of 6% (source: S-A-P).


18

Figure 11: World airline RPKs vs. world GDP

____________

Sources:

RPKs: Airline Monitor and Boeing Current Market Outlook, multiple years including 2011

(RPKs = revenue passenger kilometers for all airlines)

GDP: World Bank, World Development Indicators, 2011 and WTO estimate for 2011

(GDP is World GDP in current US dollars indexed to 1971)

0

200

400

600

800

1,000

1,200

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

Index

ed W

orld

GDP

and

Airlin

e RP

Ks (1

971 =

100)

Indexed World Airline RPKs (1971 = 100)

Indexed World GDP (1971 = 100)CAGR = 6.0%

CAGR = 3.1%

SOURCES: AIRLINE MONITOR and BOEING CURRENT MARKET OUTLOOK, WORLD BANK, WTO, S-A-P REPORT

3.3 LCCs flying high

Overall, while we think that air travel is not a fast-growing sector, we believe that low-cost carriers (LCCs) are expanding swiftly due to the gains in market shares. This phenomenon is not only taking place in Malaysia but also worldwide. The trend began in the US and Europe. As a case in point, LCCs only had a 4.9% share of departing seats in Western Europe in 2001 but this increased to a substantial 35.9% in 2011.

The seat market share of LCCs globally has grown rapidly from 8% in 2001 to 26.5% in 2012. In North America, the seat market share of LCCs was as high as 30% in 2012. Meanwhile, the share of total seat capacity operated by LCCs in Asia more than doubled in the five years from 2007 to 2012.


19

Figure 12: LCCs' share of global passenger seat capacity

Title:

Source:


8.0%9.5%

11.4%

13.5%14.9%

16.7%

19.3%21.1%

21.9%23.4%

24.3%

26.5%

0%

5%

10%

15%

20%

25%

30%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTDAug12

SOURCES: STRATEGIC AIRPORT PLANNING

The expansion of LCCs in the Asia Pacific region was even faster. LCCs’ share of passenger seat capacity in the region surged from a mere 1.1% in 2001 to a quarter (24.6%) up to Aug 12. The share even increased by 5.5% pts in the first eight months of 2012 from 19.1% in 2011 due to, in our view, the aggressive expansion of LCCs and the emergence of new players.

Figure 13: LCCs' share of passenger seat capacity in the Asia Pacific region

Title:

Source:


1.1%1.8%

2.4%

4.5%

6.5%

9.0%

12.3%

14.1%

15.7%

17.7%19.1%

24.6%

0%

5%

10%

15%

20%

25%

30%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTDAug12



20

Figure 14: LCCs’ share of total passenger seat capacity in Malaysia

Title:

Source:


0% 0% 0%3%

8%

13%

17%

28%

41%44% 45% 47%

0%

8%

4%

21%25%

32%

43%

50%53% 52%

58% 57%

0%

10%

20%

30%

40%

50%

60%

70%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD12

International Domestic


Figure 15: LCCs’ share of total passenger seat capacity in Thailand

Title:

Source:


0% 0% 0%2%

6%8%

10% 10%13% 14% 14%

16%

0%0% 0%

18%

28%

35%

42%39%

29%

35%

41%

51%

0%

10%

20%

30%

40%

50%

60%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD12



Figure 16: LCCs’ share of total passenger seat capacity in Indonesia

Title:

Source:


0% 0% 0%3%

8%

13%16%

23%

32% 33%35%

41%

0%0% 0% 0%

2%5% 5% 5% 5%

7%5%

50%

0%

10%

20%

30%

40%

50%

60%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD12




21

Figure 17: LCCs’ share of total passenger seat capacity in the Philippines

Title:

Source:


0% 0% 0% 0%2%

7%

13% 15%17% 19%

24%28%

27% 29% 31% 31% 30%34%

40%43%

46%

56%

63%

78%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD12



LCCs have also been gaining significance in the ASEAN region. In Malaysia, LCCs account for 46.6% of international passenger seat capacity and 57.4% of domestic seat capacity. In Thailand, LCCs make up for 16% of international passenger seat capacity and 50.7% of domestic seat capacity.

In Indonesia, the LCC share of international seat capacity increased from 3.1% in 2004 to 41% in 2012. LCCs in Indonesia accounted for only 1.8% of domestic seat capacity in 2005 but this grew to 50% in 2012. In the Philippines, LCCs currently have a 27.6% share of departing international seats and 78.4% of departing domestic seats.

All the above paint a bright picture of the prospects for AirAsia, which is the leading LCC in Asia. Tune Ins will also benefit from this as it is selling travel insurance products to AirAsia’s customers.

Furthermore, the LCC model is, to certain extent, defensive as it would continue to grow during a recession. This is because more people would switch to LCCs during an economic downturn for cost purposes.

3.4 Hitching a ride with AirAsia

Over the past few years, AirAsia has been on an expansion trail, venturing into neighbouring countries, including Thailand, Indonesia and the Philippines. It achieved swift CAGRs for passenger movements in the major markets over the period 2009-11 – 15.4% in Malaysia, 17.2% in Thailand and 20.3% in Indonesia. Its market shares of the passengers in these markets also increased – from 42.1% in 2009 to 44.2% in 2011 in Malaysia, from 13.3% to 14.8% in Thailand and from 3.5% to 3.7% in Indonesia (source: S-A-P).

Philippines’ AirAsia was launched in Mar 12, with routes to Kalibo, Davao and Puerto Princesa from Manila’s Clark Field and with plans for at least two more destinations before year-end of 2012. The Philippines Civil Aeronautics Board expects air travel in the country to grow by double-digit rates.

Three new LCCs commenced operations in 2012 in Japan, including AirAsia Japan, a joint venture between AirAsia and ANA. AirAsia Japan received its operating certificate in Feb 12 and launched services with its first flight on 1 Aug 12 from Narita to Fukuoka. AirAsia Japan expects to grow to a fleet of four A320s during its initial phase of operations. Operations will focus first on domestic service but are expected to expand in the future to destinations in the neighbouring countries of China, Korea, the Philippines and Russia.

AirAsia Group carriers operate a significant number of flights to/from China and India, which have the biggest populations in the world, and have


22

announced plans to increase the number of routes and frequencies for both countries. The cities in these countries served by AirAsia’s carriers are Beijing, Hangzhou, Chengdu, Chongqing, Guilin, Guangzhou and Shenzhen for China as well as Kolkata, Chennai, Tirucirappalli, Kochi and Bangalore for India.

AirAsia is operating with 111 aircraft – 100 Airbus A320s and 11 Airbus A330s and A340s. The company intends to increase its fleet to a total of 409 aircraft by 2026 with orders of 175 Airbus A320s, 200 Airbus A320s-NEO and 11 Airbus A330s and A350s to be delivered between 2016 and 2026. As such, the number of AirAsia’s aircraft would more than triple in the next 14 years, signalling a swift expansion of the business and the strong demand for its services.

The rapid expansion of AirAsia could catalyse growth in business volume for Tune Ins. This could come from an increase in passengers in existing markets, i.e. Malaysia, Thailand, Indonesia and Singapore. Tune Ins may also be able to tag along with AirAsia as it expands into new markets, such as Japan and India, without high start-up costs and the need to apply for new licences.

3.5 A beneficiary of web-based business transactions

As Tune Ins’s travel insurance is mainly sold through the Internet on the websites of AirAsia, Tune Hotels and Expedia, it should benefit from the growing trend for online purchases of air tickets. Until the mid-1990s, approximately 80% of all airline ticket sales were sold through travel agencies. With the emergence of the Internet, sales migrated to online websites like Orbitz and Expedia, which have become the largest travel agencies in the world today. In 1996, less than 1% of all airline tickets were sold online. Currently, approximately 50% of all sales are made online, with most going through travel sites such as Expedia, Travelocity, Orbitz and Zuji (source: S-A-P).

3.6 The competitors

Given the growth opportunities for travel insurance, a few insurers have also entered into this market segment, primarily with tie-ups with other airlines. Chartis is one of the keen players in this segment. Together with Jetstar and Air Philippines, it sells its TravelGuard policies online in several countries, including Singapore, Thailand, Indonesia, Vietnam and the Philippines. Etiqa also has similar arrangements with Malaysian Airlines, although sales are limited to trips originating from Malaysia only. Almost all non-life insurance companies sell travel insurance products, although most of them do not have tie-ups with airlines.

3.7 Prospects for insurance sector

Overall, we do not see the non-life insurance as a fast-growth sector in Malaysia; the expected rate is about 1.3x of GDP growth. The two biggest sub-segments, i.e. motor and fire, are maturing as most properties and motor vehicles in Malaysia are insured and, hence, growth will only come from newly-completed properties and new cars on the road. As shown in the following chart, the non-life gross insurance premiums in Malaysia only grew at single-digit rates of 4-8% in 2007-11. Pegging a multiple of 1.3x to the projected GDP growth of 5-6% in 2013 (by CIMB and Bank Negara Malaysia), non-life gross premiums would expand by between 6.5% and 7.8% in 2013.


23

Figure 18: Malaysia's non-life general insurance and growth

Title:

Source:


0

2

4

6

8

0

2,000

4,000

6,000

8,000

10,000

12,000

2007 2008 2009 2010 2011

%RM bn

Gross premiums (LHS) yoy growth (RHS)


Conversely, we believe that health/medical insurance would have better growth prospects, with annual rates of possibly above 10% in the next 1-2 years. This is mainly because of the (1) increased awareness of the importance of health insurance on top of life insurance, (2) escalating medical costs, and (3) growing trend of purchasing health insurance for special purposes, such as travel.

Figure 19: The growth in the premiums of non-life insurance segments

Title:

Source:


0

2

4

6

8

10

12

14

16

2007 2008 2009 2010 2011

%

Fire Motor Medical


Our view is supported by the double-digit growth in the premiums for accident and health (A&H) insurance from 2006 to 2011, except for 2009 due to the global financial crisis. The share of A&H insurance over total non-life premiums also rose from 11.3% in 2006 to 14.2% in 2011 (source: Milliman). This paints a positive picture for the growth of Tune Insurance’s Travel Protection Plan, which, in our view, will be the major earnings driver in the next 3-5 years.


24

Figure 20: A&H direct gross written premiums and % growth

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2006 2007 2008 2009 2010 2011

Premium Growth Rate


4. FUTURE PLANS AND OPPORTUNITIES

4.1 Key areas of focus

We believe that Tune Ins will focus on three areas to further improve the financial performance of the group – (1) expand the online travel insurance business, (2) revamp Tune Insurance Malaysia (previously called Oriental Capital Assurance), and (3) enhance the synergies between the online business and Tune Insurance Malaysia.

4.2 Growing the online insurance business

We expect Tune Ins to continue to build on the successful business model underlying its online insurance business. The following are the key thrusts for the group in further expanding this business as it capitalises on its tie-ups with AirAsia/Tune Hotels as well as on the good growth prospects in the region:

(a) Riding on the expansion of AirAsia

Tune Ins has to prepare itself to follow in the footsteps of AirAsia to expand into new markets, like Japan and India. It has to scout for new local insurance partners in these markets and negotiate the terms of partnership with them before the business can start.

(b) Increasing the take-up rates

The take-up rates in the major markets, like Malaysia, Thailand, Indonesia, Singapore and China, were still low at only 23-32% in 1H2012. The group aims to increase the take-up rate to 50% in the longer term by educating customers about the importance of travel insurance given the various unexpected events that can occur during trips and the high medical costs abroad. The staff in the call centre will also play a role in encouraging customers to take up travel insurance.

(c) Tie-ups with other airlines

We believe that Tune Ins will work on forging similar tie-ups with other airlines as we understand that this is allowed by AirAsia as long as the terms (pricing) offered to that airline’s customers are not more favourable compared with those offered to AirAsia’s. Business-wise, it will not be difficult to start a new tie-up with another airline as its business model and IT system are, to a large extent, replicable.


25

(d) Enhancing brand awareness

As Tune Ins is still fairly new in the market, much effort would have to be channelled towards improving brand awareness in the region. This can be achieved via joint promotion with AirAsia, through advertisement in the in-flight magazine and at AirAsia counters.

Furthermore, Tony Fernandes and Kamarudin Meranun are the majority shareholders of Queen’s Park Rangers football club. Tune Ins could use this as a means to promote its brand name.

(e) Improving customer service and the process for claims

As it aspires to be customers’ preferred travel insurance company, Tune Ins would not neglect plans to improve customer service. To achieve greater customer satisfaction, we expect Tune Ins to strive to continuously improve its call centre and the claims process in order to shorten the time for customers in receiving claims.

4.3 Improving the operations for Tune Insurance Malaysia

Another key focus for Tune Ins is to improve the operations of Tune Insurance Malaysia (TIMB), which used to be called Oriental Capital Assurance (OCA) and was acquired by Tune Ins in May 12. The group outlined its plans to revamp TIMB, as follows:-

Turnaround

Improving the capital base

Optimising the investment portfolio

Managing the underwriting process

Optimising the claims process, for instance, by hiring a new head of claims

Managing expenses

Enhance

Enhancing the existing management team by making appropriate new hires

Increasing training and changing profit commission strategy

Launching of new brands

Introducing more efficient process/technology

Optimising the product mix, for instance, reducing the motor exposure

Integrate

Wider range for products to AirAsia/Tune Group and their customers

Gateway to introduce no-frills products to TIMB’s motor insurance clients

Grow

Brand/recognition through digit direct proposition and differentiated products

Cross-selling

Introducing more complex products

As part of the revamp, the company has suspended the services of some 170 non-performing agents and hired about 70 new agents. We understand that the group aims to reduce the exposure to motor insurance, which has a thin underwriting margin due to a high claims ratio of above 70%.

4.4 Extracting the synergies


26

(a) Gaining control of the travel insurance business in Malaysia

There is a natural synergy between TIMB and Tune Ins’s online travel insurance business as TIMB will underwrite all Tune Ins’s travel insurance businesses in Malaysia. Previously without an insurance licence, Tune Ins’s businesses had to be underwritten by its insurance partner in Malaysia. Apart from allowing it to receive a greater share of the premiums generated from travel insurance, securing a licence in Malaysia will enable Tune Ins to have greater control of its premium portfolio. It can retain most the risks and select the unwanted ones for reinsurance.

(b) Distributing TIMB’s insurance products over the Internet

Other synergies are the sale of TIMB’s products over the Internet. Before acquiring TIMB, Tune Ins’s business revolved around the online insurance business and, over the years, it has honed its skills/capabilities in this area. Banking on this, it can distribute TIMB’s other insurance products, such as motor and fire insurance, over the Internet to capitalise on the rising trend of web-based purchases of consumer products. Suffice to say, Tune Insurance has the edge over its local competitors in this area.

(c) Cross-selling TIMB’s products to travel insurance customers

In 2011, Tune Ins secured a total of 5.6m policies through its tie-up with AirAsia. This provides a huge customer base, which is still growing swiftly, for TIMB to cross-sell other insurance products to, including motor and fire insurance. With the relationship between Tune and AirAsia, it can also cross-sell other insurance products to AirAsia customers.

(d) Sharing of resources

There could be cost-saving potential in the consolidation between the common functions of the online travel insurance business and TIMB, including claims processing, call centre, IT, HR, etc, in the longer term. However, overheads of the combined group would be rising due to the integration costs and the strengthening of its infrastructure to support the enlarged operations.

4.5 M&A possibilities

The group has M&A plans to support its overseas online insurance business. It is currently in discussions to acquire local insurance providers in Indonesia and Thailand. If these are successful, it can underwrite the travel insurance business directly in these countries, instead of relying on its insurance partners.

We do not think that the group needs high capital outlays for these as it just needs to acquire smaller players with licences to support its online travel insurance business instead of big ones with extensive networks.

4.6 Other opportunities

(a) Other business opportunities from AirAsia and Tune Hotels

The acquisition of Oriental Capital Assurance (OCA) allows Tune Ins to underwrite all classes of non-life insurance in Malaysia, including fire, motor, and health as well as marine and aviation. With this, we believe that Tune Ins could get other business directly from AirAsia (its shareholder) and Tune Hotels (its sister company), such as insuring the aircraft for AirAsia, the properties for Tune Hotels and the staff for both companies. At this juncture, we cannot quantify the potential additional premiums as the management is in the process of proposing this to AirAsia and Tune Hotels.

(b) Tie-ups with other airlines for travel insurance business

With its technical know-how and business experience in selling travel insurance with AirAsia, Tune Ins sees opportunities for a similar tie-up with other airlines.


27

In fact, it is in the midst of negotiations with one airline. We understand that AirAsia is not opposed to its plan for this as long as (1) the terms offered will not be better than those offered to AirAsia’s customers, and (2) it will not be detrimental to AirAsia’s interest.

5. RISKS

5.1 Expiry of the tie-up with AirAsia

As stated above, the strengths of Tune Ins lie in its exclusive tie-ups with AirAsia and its related companies – for 10 years until 2022 with AirAsia Berhad and AirAsia Japan, for 15 years with AirAsia Japan, for 15 years until 2027 with PT Indonesia AirAsia, AirAsia X and AirAsia Inc and for 5 years until 2017 with Thai AirAsia. There is no assurance that the agreements will be renewed upon expiry. The odds for the tie-up to continue would be high if AirAsia remained a shareholder of Tune Ins. Most of its 5.6m policies in 2011 and 6m in 2012 were generated from the customers of AirAsia.

We gathered from the management that there are no clauses in the agreements that signify the possibilities for renewal but rather they are subject to renegotiation. To address this risk, the management would take a proactive move by renegotiating with AirAsia 1-2 years before the expiry of the agreements.

5.2 An economic slowdown

As consumers’ spending on air travel is discretionary, it is sensitive to any economic downturn. Furthermore, the level of business travel will be dampened by poor economic situations. On this score, any recession or economic crisis will have a significant negative impact on air travel and, ultimately, the business Tune Inc generates from its tie-up with AirAsia. However, the impact of this would be less severe on LCCs (particularly AirAsia, which is the partner of Tune Ins) compared to full-service airlines.

5.3 Increased competition for LCCs

The strong growth in the low-cost carrier (LCC) segment has also attracted new players into the market. For instance, Scoot, a LCC subsidiary of Singapore Airlines, started operations in Jun 12 while Philippines-based LCC Cebu Pacific Airlines plans to launch a long-haul division. Other new players in the region include Qantas’s Jetstar, Japan Airline’s JAL Express and ANA’s Peach in Japan. Any slowdown in the growth for AirAsia due to increased competition will affect the growth prospects for Tune Ins.

5.4 Reliance on local insurers in other countries

Apart from Malaysia, Tune Ins does not have a licence to conduct insurance businesses in other countries that it operates in through the tie-up with AirAsia. As such, it will have to rely on local insurers to underwrite its business and reinsure some of the risks to its entities in Labuan. Most of the agreements with these local partners are for a short tenor of 1-2 years.

There could be risks to the above arrangements, as follows:-

A shuttering of its local insurance partners could affect the underwriting business in the country

The lack of control over the strategies and policies of local insurance partners

Any changes in the shareholders/management of the local insurance partners

Upon the expiry of the agreements, the terms for the new agreements could be less favourable

5.5 Outbreak of disease

Another major risk for air travel is the outbreak of infectious diseases. The fear of this occurring could significantly reduce the number of passengers and


28

would negatively impact AirAsia and Tune Ins. In fact, we see this as the biggest risk for Tune Ins’s travel insurance business as it could lead to a plunge in its business volume and a jump in claims due to the escalated medical costs for its policyholders to treat the diseases.

5.6 Stiff competition in the non-life insurance sector in Malaysia

The non-life insurance sector in Malaysia is fragmented with 28 players. Hence, competition is rife, especially from the bank-backed insurance companies, including Etiqa, which leverage on the network and the size of their shareholders.

5.7 High claims ratio for motor insurance business

The claims ratio for the motor insurance segment in Malaysia is high at above 70%. Although Tune Insurance Malaysia has plans to reduce the proportion of motor insurance from 54% in 2011, it would take time for the company to rebalance its portfolio. If the claims ratio for motor insurance remains high or, in the worst-case scenario, increases further, it will dilute the positive impact of growth in other more profitable segments, like fire and health insurance.

5.8 Liberalisation of Malaysia’s insurance sector

Bank Negara plans to further liberalise the insurance sector by deregulating motor and fire tariffs by 2015. This may lead to a drop in premium rates and without the tariffs, the competition on rates would heat up. This would be detrimental to the profitability of Tune Insurance Malaysia.

5.9 The need to act fast to follow the footsteps of AirAsia

Under the AA Distribution Agreement with AirAsia, Tune Ins is liable to compensate AirAsia in the event AirAsia notifies of its intention to launch its operations in a new market and the company fails to ensure its Travel Protection Plan is ready for sale to customers of AirAsia in the new market within a 3-month period from the fulfilment of conditions by AirAsia.

In the event of non-compliance, the company is liable for compensating AirAsia for any loss of opportunity, taking into account (1) the maximum regulated commission rate permitted in the new target market or a fixed percentage if there is no regulated commission rate in such market, (2) the number of AirAsia customers booking flights into or from the new target market from the date of the first commercial flight into or from such market to the date its Travel Protection Plan is ready for sale to AirAsia customers, and (3) the average monthly insurance take-up rate for the first three months experienced by AirAsia when opening new routes or markets.

Prior to the signing of the AA Distribution Agreement(s), it has experienced instances where its Travel Protection Plan was not available for sale to customers of AirAsia within a three-month period after consultation with AirAsia. Following the signing of the AA Distribution Agreement(s), it has not been in breach of this provision to date. However, it cannot ensure that it will always be able to offer its Travel Protection Plan to customers of AirAsia in new target markets within the required timeline.

5.10 Regulatory risks

In most countries, the insurance industry is regulated. The restrictions imposed by the regulators could impede the ability of insurance companies to maximise shareholders’ returns. These include requirements to hold higher capital for business undertakings. In Malaysia, all insurance companies have to be involved in the running of the Malaysian Motor Insurance Pool (MMIP), which is an insurance pool providing motor insurance coverage for high-risk vehicles, like interstate buses and taxis. The MMIP made a net loss of RM166.3m in FY11 and of RM126.2m for 9M12, which were shared by all insurance companies. Besides, the premiums for several classes of insurance coverage, including motor, property and workmen, are subject to tariffs.


29

5.11 Capital requirements for Tune Insurance Malaysia

Any higher capital requirements imposed by Bank Negara could warrant a capital injection into Tune Insurance Malaysia (TIMB). This would dilute the ROEs for TIMB.

5.12 Short tenors for Travel Protection Plan

Most of the policies for the Travel Protection Plan have short tenors of about 1-3 weeks, in line with the duration of the trips. As such, the company will have to continue to underwrite new policies to “replenish” the expiring ones. For this reason, any slowdown in air travel will have a significant impact on the growth for this business.

5.13 A downturn in equity market

We gathered that the company’s exposure to the equity market is minimal, probably accounting for less than 10% of its investment funds. However, any downturn in the equity market would still trim its investment income or even lead to investment losses.

5.14 Departure of key managers

The success of the company in the past few years can be attributed to its strong management team. Although the departure of key managers may not disrupt the company’s operations, this, to certain extent, would delay the implementation of key strategic thrusts for the company, which could be an impediment to its growth.

5.15 Risks associated with future M&As

The group stated that it is in negotiations to acquire insurance companies in Thailand and Indonesia. Apart from opportunities, these would pose new challenges to the management as it would have to operate a bigger and more diversified business in new markets. Furthermore, it does not have experience managing insurance businesses in these markets apart from those generated from its tie-up with AirAsia.

5.16 Plane crash

For the travel insurance business, a plane crash is obviously one of the risks for the company though the record for AirAsia is clean on this front. We gathered from the management that the maximum liability for the company in the event of a plane crash is about RM600,000, derived from the loss of two lives per plane and about RM300,000 per life as it has ceded the additional risks to the reinsurers.

5.17 Increase in reinsurance cost

The maximum losses for a plane crash would not be significant as Tune Ins has ceded out most of the risks from this type of event. Nonetheless, the occurrence of this would raise its reinsurance cost in the following years given the perceived increase in the associated risks. The reinsurers may choose to take smaller risks following this, which would expose Tune Ins to bigger potential losses in the future. The increase in reinsurance costs could also result from macro factors, like the rise in the occurrences of plane crashes worldwide or the reduction in underwriting capacity of the reinsurers.

5.18 Lack of operating track record

Tune Ins has a short operating track record as the business just started in 2009. As such, it has not been tested by any drastic and prolonged economic downturn. Although most of the economies in the region suffered a recession in 2009, they rebounded strongly in 2010-11.


30

6. SWOT ANALYSIS

6.1 Strengths lie in the unique business model...

As stated in the above sections, Tune Ins’s strengths lie in its unique business model of tying up with AirAsia to distribute travel insurance products. This enables the company to (1) have a regional presence even without insurance licences outside Malaysia, and (2) bank on the growth of AirAsia, which is the leading low-cost carrier (LCC) in Asia. Its other strengths that support this business model are (1) the technical know-how to market insurance products over the Internet, and (2) the relationships with the local insurance partners in other countries, such as Thailand, Indonesia and Singapore, which underwrite the policies Tune Ins brings in and reinsures back to the company’s reinsurance units.

6.2 ...but it is not faultless

But the business model is not impeccable. Its travel insurance business is carried out via a tie-up with AirAsia and its related companies but the agreement between both parties will expire in 2017-27. Furthermore, as it does not have insurance licences outside Malaysia, it has to rely on local insurance partners to underwrite its businesses in other countries, including Thailand and Indonesia. Tune Ins does not have control over the management of its insurance partners and its agreements with them are renewable on a yearly basis. Other weaknesses for Tune Ins are (1) its relatively smaller size in Malaysia’s insurance market, and (2) short operating track record of only 3-4 years.

6.3 Ample opportunities to grow in the region

The biggest opportunity for Tune Ins is that it can ride on the expected growth of AirAsia. There is strong demand for the services of LCCs in Asia and AirAsia, as the leading LCC in the region, is at the forefront. AirAsia sees good traction in its businesses in existing markets, including Thailand and Indonesia, and has plans to expand into new markets, like Japan and India.

Furthermore, we see better prospects for the growth of health insurance, compared with other classes of non-life insurance, such as motor and fire. This is premised on (1) increased awareness of the importance of this type of insurance, (2) escalating medical costs, and (3) the growing trend of customers purchasing health/personal accident (PA) insurance for special purposes, such as travelling.

Other opportunities Tune Ins may be able to capitalise on are (1) acquisitions in other countries, including Thailand and Indonesia, which will enable it to directly underwrite insurance policies in these markets, and (2) similar tie-ups with other airlines to sell travel insurance.

6.4 Exposed to systemic risks

Tune Ins is mainly exposed to the systemic risks of both the airline and insurance industries, such as (1) the slowdown in economic growth, which will crimp the growth in air travel and the take-up of insurance, (2) the outbreak of any contagious diseases, which could cripple air travel, and (3) a high claims ratio for motor insurance in Malaysia. There are limited company-specific risks for Tune Ins unless there is an exit by the major shareholders, primarily AirAsia, and a departure of any key members of the management team.


31

Figure 21: SWOT Analysis

Strengths Opportunities

10-year exclusive agreement with AirAsia The strong growth in the business for low-cost carriers

A unique and versatile business model Riding on AirAsia's aggressive expansion drive

Access to AirAsia's database of clients M&A thrusts to acquire insurers in other countries

Relationships with overseas insurance partners Establishing similar tie-ups with other airlines

Technical know-how to distribute insurance products online Exposures to faster-growing markets

Weaknesses Threats

Smaller size relative to competitors The emergence of new LCCs to compete with AirAsia

Lack of track record Keen competition for non-life insurance in Malaysia

No licence to operate insurance business overseas Outbreak of diseases that will dampen air travel

Economic slowdown to affect insurance businesses

SOURCES: CIMB, COMPANY REPORTS

7. FINANCIALS

7.1 Two major operations: travel-related insurance and full-fledged non-life insurance

Since its inception in 2009, Tune Ins has been operating a travel insurance business via a tie-up with AirAsia. Subsequently, it acquired a full-fledged insurance company, Oriental Capital Assurance, which has been renamed Tune Insurance Malaysia, in May 2012. As such, there are three parts to our financial analysis – (1) travel-related insurance (Tune Money General Re and Tune Money Life Re), (2) Tune Insurance Malaysia, and (3) the group, which includes (1) and (2).

Travel insurance business

7.2 Travel insurance business the growth driver

Given Tune Ins’s tie-up with AirAsia, we see the travel-related insurance business as the key earnings driver for the group due to (1) strong growth in existing markets, including Thailand and Indonesia, and (2) potential to enter new markets, such as Japan and India. On this score, we are projecting a healthy expansion for gross premiums of 15% in FY13-15. The gross premium growth was faster at 24.7% in FY12 due to the rise in premium rates. The company does not have a similar plan for 2013-14 and the focus is on increasing (1) the take-up rate, and (2) Tune Ins’s share from the businesses outside Malaysia via negotiations with local partners.

Although Tune Insurance’s gross premiums (generated from Tune Money General Re and Tune Money Life Re) only make up about 30-32% of the group’s total gross premiums in FY13-15, its net profit accounted for around 55% of the group’s net profit (excluding the income and expenses of the holding company) in the same period due to its better profitability compared with the other major earnings contributor for the group, TIMB.

7.3 Low claims ratio ...

It is noteworthy that the net claims ratio for the travel insurance entities was only 3-4% in FY09-12, which, in our view, is the norm for travel-related insurance. We believe that this is because most people take extra precautions with their health or belongings while travelling to avoid any unwanted inconveniences. Furthermore, AirAsia has been improving the punctuality of the departures of its flights and, hence, there are lower claims for the coverage for “on-time guarantee”.

This compares favourably against the double-digit claims ratios for other classes of non-life insurance. We expect the claims ratio to be kept stable at


32

3-4% levels in FY13-15. The risk to our assumption is an outbreak of disease that could significantly increase the medical costs for travellers.

7.4 ...--> lucrative underwriting margin

The low claims ratio would enable the travel insurance business to achieve lucrative underwriting margins of 53-54% in FY13-15. This is despite the high commission ratio of 30-31%, which is believed to be the commissions paid to AirAsia and Tune Hotels for the utilisation of their distribution channels and websites for the sale of Tune Ins’s insurance products.

Management expense shot up by 442.9% in FY12, pushing up its management expense ratio from 2.6% in FY11 to 12.2% in FY12. We gathered that this was because of the more aggressive marketing of its products regionally. The company plans to spend 5% of its premium income on marketing expenses, including advertisements in planes, airports, billboards and online. Overall, we are projecting a combined (expense) ratio of 46-47% for FY13-15.

7.5 Healthy earnings growth

We are forecasting healthy net profit growth for the travel insurance business – at 14.4% in FY13, 15.9% in FY14 and 15.3% in FY15. This would be underpinned by (1) projected gross premium expansion of 15%, as well as (2) stable and low claims ratio of 3-4%. Based on our forecasts, the commission and management expenses ratios would be kept at 30-31% and 12-13%, respectively, in FY13-15.

Figure 22: Tune Insurance’s P&L statements

Year end 30 Dec (M$m) 2009 2010 2011 2012 2013F 2013F 2013F

Gross premium 30.0 43.5 55.5 69.2 79.6 91.5 105.2

Premiums ceded to reinsurers (0.5) (0.8) (1.1) (1.2) (1.5) (1.7) (1.9)

Net premium 29.5 42.7 54.4 68.0 78.1 89.8 103.3

Investment income 0.0 0.0 0.4 0.8 0.9 1.1 1.2

Other operating income 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Others 0.5 0.8 1.1 0.0 0.0 0.0 0.0

Operating revenue 30.0 43.5 55.9 68.8 79.1 90.9 104.6

Claims

Gross claims paid (0.1) (1.2) (1.1) (1.9) (2.3) (2.5) (2.9)

Gross change to contract liabilities (0.9) (0.3) (0.8) (0.5) (0.6) (0.6) (0.6)

Total (1.0) (1.5) (1.9) (2.4) (2.9) (3.1) (3.5)

Operating costs

Fee and commission expenses (11.1) (14.5) (17.3) (20.7) (23.8) (27.4) (31.5)

Management expenses (0.2) (0.2) (1.4) (7.6) (9.0) (10.3) (11.9)

Other operating expenses 0.0 (0.1) 0.0 0.0 0.0 0.0 0.0

Total operating costs (11.3) (14.8) (18.7) (28.3) (32.8) (37.7) (43.3)

Pretax profit/EBIT 17.2 26.4 34.2 37.4 42.7 49.5 57.1

Taxation 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Minority interest (3.4) (5.3) (6.9) (0.1) 0.0 0.0 0.0

Net profit 13.8 21.1 27.3 37.3 42.7 49.5 57.1 SOURCES: CIMB, COMPANY REPORTS


33

Figure 23: Key ratios for P&L statements


Gross premium growth 45.0% 27.6% 24.7% 15.0% 15.0% 15.0%

Net premium growth 44.7% 27.4% 25.0% 14.9% 15.0% 15.0%

Revenue growth 45.0% 28.5% 23.1% 14.9% 15.0% 15.0%

Increase in gross claims 1100.0% -8.3% 72.7% 23.3% 6.1% 18.4%

Increases in operrationg costs

Fee and commission expenses 30.6% 19.3% 19.7% 15.0% 15.0% 15.0%

Management expenses 0.0% 600.0% 442.9% 18.0% 15.0% 15.0%

Other operating expenses 100.0% -100.0% - - - -

Total operating costs 31.0% 26.4% 51.3% 15.8% 15.0% 15.0%

Breakdown of operating costs

Fee and commission expenses 98.2% 98.0% 92.5% 73.1% 72.6% 72.6% 72.6%

Management expenses 1.8% 1.4% 7.5% 26.9% 27.4% 27.4% 27.4%

Other operating expenses 0.0% 0.7% 0.0% 0.0% 0.0% 0.0% 0.0%

Total operating costs 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost and margin ratios

Net claims ratio 3.4% 3.5% 3.5% 3.5% 3.7% 3.4% 3.4%

Commission ratio 37.6% 34.0% 31.8% 30.4% 30.5% 30.5% 30.5%

Management expense ratio 0.7% 0.7% 2.6% 12.2% 12.4% 12.3% 12.2%

Combined ratio 41.7% 38.2% 37.9% 46.2% 46.6% 46.1% 46.0%

Underwriting margin 58.3% 61.8% 62.1% 53.8% 53.4% 53.9% 54.0%

Operating costs over revenue 37.7% 34.0% 33.5% 41.1% 41.4% 41.4% 41.4%

Net profit over revenue 46.0% 48.5% 48.9% 54.2% 54.0% 54.4% 54.5%

Net profit growth - 52.9% 29.5% 36.6% 14.4% 15.9% 15.3% SOURCES: CIMB, COMPANY REPORTS

Tune Insurance Malaysia (a full-fledged non-life insurance company in Malaysia)

7.6 Slower growth for Tune Insurance Malaysia

In line with the industry’s pace, we envisage slower growth in Tune Insurance Malaysia Berhad’s (TIMB) gross premiums relative to the expansion of the travel insurance business, except for a one-off boost in FY13 from the underwriting of Tune Insurance’s travel insurance. Recall that TIMB is a full-fledged non-life insurer in Malaysia with exposure to all classes of non-life insurance.

The premium expansion momentum for motor and fire insurance, which, in our view, are matured segments, could be slow at single-digit rates of 7-8%. We are more positive about the growth of health/medical insurance due to (1) escalating medical costs, (2) increased awareness of the importance of this type of coverage, and (3) growing trend for customers to purchase health insurance for special purposes, like travelling. However, the proportion of medical insurance over Tune Insurance Malaysia’s (TIMB) total premiums was still small at about 11% in FY12, compared with 48% for motor.

Although TIMB’s gross premiums would make up a hefty 68-70% of the group’s total gross premiums in FY13-15, its net profit would only account for around 46% of the group’s net profit in the same period, lower than the profit contributions from the travel insurance business. This is because of its lower profitability, reflected by the ratio of net profit over revenue of 12-14% projected for FY13-15 vs. around 54% for the travel insurance business.

7.7 Faster premium growth in FY13 due to...

For the existing business of Tune Insurance Malaysia (TIMB), we are projecting a gross premium growth of 10% for FY13 and 8% for FY14-15. However, we estimate that the underwriting of Tune Insurance’s travel insurance will add


34

RM40m to TIMB’s gross premiums in FY13. For this reason, TIMB would achieve strong gross premium growth of 25% in FY13.

7.8 Improving net claims ratio

TIMB’s net claims ratio has fallen from 80.6% in FY09 to 45.5% in FY12, which reflects the results of the group’s transformation programme to improve its claim experience. We understand that the revamp started even before Tune Ins acquired Oriental Capital Assurance (OCA) as it appointed key management posts in OCA in 2011 to work on this.

We believe that the claims ratio in FY12 was partly suppressed by one-off items given the RM3.8m positive change in contract liabilities ceded to reinsurers compared to charges of between RM38.4m and RM125.8m in FY09-11. As such, we are projecting a higher net claims ratio of 51-54% for FY13-15, which we think will be more sustainable, vs. 45.5% in FY12.

7.9 Positive underwriting margin in FY12

The drop in claims ratio enabled the group to register an underwriting margin of 12.5% in FY12, compared to deficits of between 1.6% and 25.9% in FY09-11. The combined ratio was 87.5% in FY12 vs. more than 100% in the past three years. We are forecasting an underwriting margin of 8-10% for TIMB in FY13-15, based on the projected ratios of 51-54% for claims, 20% for commission and circa 18% for management expenses.

7.10 A projected drop in FY13 net profit due to...

As stated above, we expect additional premium income for TIMB to be generated from the group’s travel insurance business via the tie-up with AirAsia, which will push up its premium growth to 25% in FY12. However, we are projecting an 11.4% drop in TIMB’s net profit to RM43.8m in FY12 as we believe that one-off items pushed down the claims ratio in FY12 to 45.5% and we expect this to normalise to 51-54% in FY13-15.

We expect TIMB’s net profit growth to resume at 17.3% in FY14 and 12% in FY15, primarily aided by the sequential drop in the claims ratio from 54.3% in FY13 to 52.4% in FY14 and 51.2% in FY15. The anticipated declining trend in the claims ratio is underpinned by the group’s transformation programme to improve the ratio. This would be achieved by reducing the proportion for motor premiums, which attract the highest claims ratio, and increasing the share for the more profitable travel insurance business. There is also room for the group to increase its portfolio of fire insurance premiums, which only make up 9% of the group’s total premiums. Overall, the fire insurance business has a lower claims ratio of about 40% vs. 60-70% for motor insurance.


35

Figure 24: P&L statements for Tune Insurance Malaysia (a full-fledged non-life insurer in Malaysia)

Year end 30 Dec (M$m) 2009 2010 2011 2012F 2013F 2014F 2015F

Gross premium 226.3 244.2 245.8 265.5 331.9 358.4 387.1


Net premium 108.9 122.7 156.4 155.0 185.9 202.5 218.1


Realised gains and losses 4.7 3.1 6.1 6.7 5.9 6.2 6.2

Fees abd commission income 19.3 15.7 13.6 21.9 18.1 18.6 19.0



Claims


Claims ceded to reinsurers 142.0 47.6 55.8 106.6 96.7 100.4 107.6

Net claims (84.1) (82.0) (81.4) (105.4) (119.0) (123.6) (132.4)

Gross changes to contract liabilities 122.1 48.0 11.8 31.2 35.7 36.2 41.0

Change in contract liabilities ceded to reinsurers (125.8) (58.1) (38.4) 3.8 (17.5) (18.7) (20.3)

Total (87.8) (92.1) (108.0) (70.5) (100.9) (106.2) (111.7)

Operating costs



Other operating expenses 0.0 0.0 (2.1) (0.5) (0.6) (0.6) (0.6)



Taxation (2.7) (5.7) (8.7) (17.0) (17.0) (17.0) (17.0)

Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net profit 5.8 10.2 26.3 49.4 43.8 51.3 57.5

SOURCES: CIMB, COMPANY REPORTS

Figure 25: Key ratios for P&L statements of Tune Insurance Malaysia (a full-fledged non-life insurer in Malaysia)



Net premium growth 12.7% 27.5% -0.9% 19.9% 9.0% 7.7%

Revenue growth 7.7% 2.4% 7.6% 25.0% 8.0% 8.0%

Changes in gross claims -42.7% 5.9% 54.6% 1.7% 3.8% 7.1%

Changes in net claims -2.5% -0.7% 29.5% 12.9% 3.8% 7.1%

Net claims over gross premiums 77.2% 66.8% 52.0% 68.0% 64.0% 61.0% 60.7%


Fee and commission expenses -6.3% 9.2% 28.6% 10.0% 10.0% 8.0%

Management expenses -2.9% -1.7% 36.8% 8.0% 8.0% 8.0%

Other operating expenses - 100.0% -75.5% 8.0% 8.0% 8.0%

Total operating costs -4.7% 8.3% 28.0% 9.0% 9.0% 8.0%







Net claims ratio 80.6% 75.1% 69.1% 45.5% 54.3% 52.4% 51.2%



Combined ratio 125.9% 113.4% 101.6% 87.5% 92.5% 90.7% 89.6%

Underwriting margin -25.9% -13.4% -1.6% 12.5% 7.5% 9.3% 10.4%



Net profit growth - 75.9% 157.8% 87.7% -11.4% 17.3% 12.0% SOURCES: CIMB, COMPANY REPORTS


36

Tune Ins. Holdings (the group)

7.11 Explosive earnings growth in 2013 due to...

We are projecting explosive growth of 63.7% in Tune Ins’s net profit to RM67.9m, primarily spurred by (1) full-year contributions from TIMB compared to seven months in FY12, (2) listing expense of RM12m in FY12, (3) financing costs of RM9m in FY12 for the borrowings of RM133m, which were paid off by the proceeds from the IPO in Feb 13, and (4) the underwriting by TIMB of the travel insurance business via the tie-up with AirAsia.

Normalised net profit growth in FY13 is estimated to be 29.1%, assuming a full year of earnings from TIMB and the travel insurance entities in FY12 and FY13 and excluding other non-recurring items, like listing expenses and finance costs.

7.12 14-18% net profit growth in FY14-15

The group’s net profit growth would normalise to 17.8% in FY14 and 14.3% in FY15, supported by (1) gross premium growth of 9.4% p.a. and (2) an improvement in the claims ratio from 39.3% in FY13 to 37.4% in FY14 and 35.8% in FY15. ROE is forecast to be strong at about 21% in FY14-15.

7.13 Phenomenal growth in premiums in FY12-13

As Tune Ins bought TIMB, which has a bigger premium base compared to its existing business, in May 12, its gross premiums jumped 287.4% to RM215m in FY12, which included seven months of contributions from TIMB. With full-year contribution from TIMB in FY13, the group’s gross premiums are projected to surge by another 91.4% to RM411.5m. This would also include the additional premium of an estimated RM40m for TIMB’s underwriting of travel insurance via the tie-up with AirAsia. The growth rate for the gross premiums is expected to normalise to 9.4% in FY14-15, emanating from an expansion of 15% for the travel insurance entities and 8% for TIMB.

7.14 Low claims ratio

The combined entity of the travel insurance business and TIMB is projected to have a claims ratio of 36-39% in FY13-15, which is believed to be the lowest in the industry. This is mainly the result of the low claims ratio of only +3% for its travel-related insurance business. The low claims ratio would enable the group to achieve a strong underwriting margin, which is expected to expand from 18% in FY13 to 19.9% in FY14 and 21.4% in FY15.


37

Figure 26: P&L statements for Tune Ins. (the group)


Gross premium 30.0 43.5 55.5 215.0 411.5 450.0 492.4


Net premium 29.5 42.7 54.4 158.4 264.0 292.4 321.5


Realised gains and losses 0.0 0.0 0.0 3.9 5.9 6.2 6.2

Fees abd commission income 0.0 0.0 0.0 9.6 18.1 18.6 19.0



Claims


Claims ceded to reinsurers 0.0 0.0 0.0 62.2 96.7 100.4 107.6

Net claims (0.1) (1.2) (1.1) (63.4) (121.4) (126.1) (135.4)

Gross changes to contract liabilities (0.9) (0.3) (0.8) 17.7 35.1 35.6 40.4

Change in contract liabilities ceded to reinsurers 0.0 0.0 0.0 2.2 (17.5) (18.7) (20.3)

Total (1.0) (1.5) (1.9) (43.5) (103.8) (109.2) (115.2)

Operating costs



Other operating expenses 0.0 (0.1) 0.0 (4.7) (4.6) (5.0) (5.4)



Taxation 0.0 0.0 0.0 (10.0) (19.3) (19.5) (19.9)

Minority interest (3.4) (5.3) (6.9) (7.1) (7.3) (8.6) (9.6)

Net profit 13.8 21.1 28.4 41.5 67.9 80.0 91.4

EPS (sen) 11.1 10.0 10.7 12.2

DPS (sen) 0.0 4.0 4.3 4.9

BV/share (RM) 0.18 0.48 0.54 0.61 SOURCES: CIMB, COMPANY REPORTS


38

Figure 27: Key ratios for P&L statements of Tune Ins. (the group)



Net premium growth 44.7% 27.4% 191.2% 66.7% 10.8% 10.0%

Revenue growth 45.0% 28.5% 304.8% 92.2% 9.3% 9.4%

Changes in gross claims 1100.0% -8.3% 11318.2% 73.6% 3.9% 7.3%

Changes in net claims 1100.0% -8.3% 5663.6% 91.5% 3.9% 7.4%

Net claims over gross premiums 0.3% 2.8% 2.0% 40.0% 46.0% 43.1% 42.1%


Fee and commission expenses 30.6% 19.3% 113.9% 63.7% 12.0% 10.8%

Management expenses 0.0% 600.0% 2050.0% 57.7% 9.5% 9.4%

Other operating expenses - - 100.0% -2.4% 9.8% 8.0%

Total operating costs 31.0% 26.4% 284.0% 56.9% 10.8% 10.1%







Net claims ratio 3.4% 3.5% 3.5% 27.5% 39.3% 37.4% 35.8%



Combined ratio 41.7% 38.2% 37.9% 72.8% 82.0% 80.1% 78.6%

Underwriting margin 58.3% 61.8% 62.1% 27.2% 18.0% 19.9% 21.4%



Net profit growth - 52.9% 34.6% 46.1% 63.7% 17.8% 14.3%

ROE 64.9% 29.2% 20.9% 21.1%

EPS growth -9.7% 6.6% 14.3% SOURCES: CIMB, COMPANY REPORTS

7.15 40% dividend payout

The company has a dividend policy of paying out 40% or more of its net earnings. This is the basis for our assumed 40% payout, which gives a projected net DPS of 4 sen in FY13, 4.3 sen in FY14 and 4.9 sen in FY15. Although the dividend yield of 2-3% in FY13-15 is lower than the market’s yield of 3.6% in 2013 and 3.9% in 2014, we see this as reasonable for a growth stock like Tune Ins.

8. VALUATION AND RECOMMENDATION

8.1 Initiating coverage with an Outperform rating

We are initiating coverage on Tune Ins with an Outperform rating. Our positive stance on the stock is underpinned by:-

(1) The regional exposure with revenue generated from 14 markets, including the underpenetrated ones like Indonesia and Vietnam

(2) Tie-up with the fast-expanding AirAsia

(3) Bright earnings outlook, with projected net profit growth of 17.8% in FY14 and 14.3% in FY15

(4) High underwriting margins for the travel insurance business of 53-54% in FY13-15

8.2 DDM-based target price of RM1.63

Valuation-wise, we are using a 2-stage DDM methodology to value Tune Ins to reflect its (1) strong earnings growth, and (2) commitment to a 40% dividend payout. Pegging a 10% discount to the DDM value, we derive a target price of


39

RM1.63 for Tune Ins. The discount is line with the valuation of other financial stocks, apart from the big-capped banks, like Maybank and Public Bank.

The key DDM parameters are (1) risk-free rate of 2.9%, (2) market risk premium of 6.1%, (3) EPS growth of 7% in the 15-year interim phase, (4) assumed dividend payout of 60% at the end of the interim phase, and (5) long-term growth rate of 4%. The stock has only been listed for more than a month, a period which is too short to derive a meaningful beta from. On this score, we assume a beta of 1 in our DDM model, which, in our view, is reasonable compared to a range of 0.7 and 1 for other insurance stocks in Malaysia.

8.3 Above-market valuation

The implied CY14 P/E for our target price of RM1.63 is 15.3x, above the 13.5x for our KLCI target of 1,640. However, we opine that this is reasonable given Tune Ins’s superior (1) net profit growth of 17.8% (vs. 10% for the market), and (2) ROE of 20.9% (vs. 15.5%). However, its dividend yield of 2-3% in CY14 is lower than the market’s 3.9%.

8.4 Valuation of insurance companies in Malaysia

As shown in the following chart, LPI has the highest FY13 P/E of 15.3x, more than double the 7.2x for Allianz and 5.4x for Pacific and Orient (P&O). The higher valuation for LPI, in our view, is due to its strong management, proven track record and attractive dividend yields. LPI Capital has a common major shareholder, Tan Sri Teh Hong Piow, with Public Bank, which is known as the best-run retail bank in Malaysia with ROE of 23-24%.

Tune Ins’s P/E is the second highest at 14.3x, which, in our view, is supported by its (1) regional exposure in 14 markets, (2) strong growth prospects for the tie-up with AirAsia, and (3) lucrative margins from its travel insurance business.

In terms of P/BV, Tune Ins’s is the highest at 3x for FY13, which, in our view, is due to its leveraged model for the travel insurance business. This would enable the group to generate superior ROE of about 21% in FY13-14. The P/BVs of LPI and Syarikat Takaful Malaysia, are also high at circa 2x.

Figure 28: FY13 P/E for Malaysian insurance stocks

Title:

Source:


15.3

14.3

10.1

7.2

5.4

0

2

4

6

8

10

12

14

16

18

LPI Tune Syarikat Takaful Allianz P&O

SOURCES: BLOOMBERG, CIMB, COMPANY REPORTS

Note: Prepared on 26 Mar 13


40

Figure 29: FY13 P/BV for Malaysian insurance stocks

Title:

Source:


3.0

2.12.0

1.4

0.9

0

1

2

3

Tune LPI Syarikat Takaful Allianz P&O

SOURCES: BLOOMBERG, CIMB, COMPANY REPORTS

Note: Prepared on 26 Mar 13

Figure 30: Sector comparison table for insurance stocks

Company

Bloomberg

Ticker Recom. Price

Target

Price Market Cap Core P/E (x)

3-year

EPS

CAGR P/BV (x)

Recurring

ROE (%)

Dividend

Yield (%)

(lcl curr) (lcl curr) (US$ m) CY2012 CY2013 (%) CY2012 CY2012 CY2012

Hong Kong

AIA Group 1299 HK OUTPERFORM 34.00 34.88 52,750 24.3 22.4 12.8% 1.96 8.9% 1.1%

Prudential PLC 2378 HK NR 125.5 NA 41,356 13.3 13.2 13.8% 2.62 22.6% 2.7%

Simple average 18.8 17.8 13.3% 2.29 15.7% 1.9%

China

China Life Insurance Co Ltd 2628 HK NR 20.10 NA 76,894 41.8 15.6 77.3% 2.05 5.4% 0.9%

China Pacific Insurance Group 2601 HK NR 25.55 NA 27,767 35.2 18.8 41.5% 1.92 5.9% 1.7%

China Taiping Insurance Holdin 966 HK NR 13.26 NA 2,914 24.1 14.0 49.2% 1.63 7.4% 0.0%

PICC Property & Casualty Co Lt 2328 HK NR 9.97 NA 15,739 9.6 8.6 8.8% 2.17 25.2% 3.2%

Ping An Insurance Group Co of 2318 HK NR 60.20 NA 55,873 19.3 13.4 27.6% 2.39 13.8% 0.9%

Simple average 26.0 14.1 40.9% 2.04 11.5% 1.3%

Korea

Hanwha Life Insurance Co Ltd 088350 KS NR 6,720 NA 5,237 11.1 9.7 9.6% 0.84 8.3% 3.2%

Samsung Life Insurance Co Ltd 032830 KS NR 103,000 NA 18,483 21.9 18.0 8.9% 1.03 5.5% 1.9%

Tongyang Life Insurance 082640 KS NR 10,700 NA 1,033 10.0 7.4 18.4% 0.91 10.7% 3.5%

Simple average 14.3 11.7 12.3% 0.93 8.2% 2.9%

Singapore

Great Eastern Holdings Ltd GE SP NR 18.00 NA 6,862 7.2 15.3 -29.1% 1.78 27.3% 2.1%

Malaysia

Tune Ins Holdings Bhd TIH MK OUTPERFORM 1.40 1.63 340 12.7 14.0 40.7% 7.90 64.3% 0.0%

Thailand

Bangkok Life Assurance PCL BLA TB NR 73.00 NA 3,008 26.7 18.0 30.6% 4.40 19.7% 1.0%

Australia

AMP Ltd AMP AU NEUTRAL 5.21 5.11 15,898 15.4 16.2 2.9% 2.05 13.5% 4.8%

Insurance Australia Group IAG AU NEUTRAL 5.71 5.20 12,362 15.8 12.0 33.5% 2.68 17.0% 4.0%

QBE Insurance Group QBE AU NEUTRAL 13.51 13.11 16,836 14.8 12.3 26.5% 1.48 10.2% 3.6%

Suncorp Group SUN AUOUTPERFORM 11.82 12.34 15,836 17.4 14.1 27.1% 1.06 6.1% 4.8%

Simple average 15.9 13.7 22.5% 1.82 11.7% 4.3%

Simple Average (all co) 17.4 14.9 18.7% 3.02 22.6% 1.9% SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG


41

9. APPENDICES

A. The management profile

The following are the profiles of the key management personnel of the company:-

Peter Miller (CEO) – Mr. Miller had previously held various positions in CIMB Bank and AIA Insurance from 2001 to 2010. He was the chairman of CIMB Sun Life and was on the board of CIMB Aviva, CIMB Aviva Takaful, Labuan Re and CIG. He has a wide range of experience in the financial service sector across five continents. He graduated with a Bachelor of Science from Leicester University, UK.

Tan Ah Moi (CFO) – Tan has over 30 years of working experience related to auditing, corporate planning, treasury, financial management, accounting, share registration, taxation, company secretarial, corporate finance, general administration, human capital and risk management.

She started her career with Coopers & Lybrand, Kuala Lumpur (now known as PricewaterhouseCoopers) in Jun 1978, holding various positions ranging from trainee in audit to accounts supervisor. In Jul 1985, she joined PanGlobal Insurance (now taken over by Tokio Marine Insurans (Malaysia) as an accountant. In Nov 1991, she left PanGlobal Insurance with her last posting as assistant general manager (Finance) where she was responsible for matters relating to corporate planning, financing management, accounting, share registration, taxation and company secretarial.

In Dec 1991, she was appointed as the finance manager of PanGlobal Sistemaju. In May 1994, she joined Unico Holdings as the group accountant cum company secretary. Subsequently, she joined Mersing Construction and Engineering as the financial controller in Dec 1997 and was responsible for the company’s financial, accounting, human resource and administration matters.

In Apr 2000, she joined a stockbroking firm, BBMB Securities, as vice president (institutional sales). In Aug 2000, she joined Paxelent Corporation Berhad (PCB) as the CFO and was subsequently appointed as an executive director of PCB in Dec 03. She joined ING Insurance in Dec 04 as the vice president of the financial control division and was in charge of ING Insurance’s finance, accounting, tax, legal and general administration till she resigned from her position in Jul 08. She was appointed as the finance and admin director of Yokohama Industries from Dec 08 to Oct 12. In Nov 12, she joined TC Management Services Corporation as the general manager (secretarial).

Sasitharan Kristhan (general manager) – Mr. Kristhan has held executive positions in Maybank, AmBank and HSBC in the financial services distribution divisions. He was the country head of ReMark, a world leader among the providers of insurance direct distribution solutions. He graduated from the University of London.

Jessica Teng (head of finance) – Jessica was the head of finance of Ace Jerneh. She is a member of the Chartered Institute of Management Accountants.

Virendra Antony Sukrutaraj (head of ICT) – Mr. Sukrutaraj has more than 15 years of experience in the ICT industry in India and Singapore. He was Asia Pacific head of IT for Convergys Singapore before starting his own business for IT consultancy services. He has a First Class Bachelor of Science in computer science.

Sarah Sri Cahaya (head of programme management office) – She has more than 10 years of experience in the financial service industry, which includes


42

project and programme management for Maybank LEAP 30 transformation and Mayban-MNI Takaful Nasional merger. She has a Bachelor of Science in biomedical science.

Andria Geni Adnani (head of general insurance) – She has 15 years of experience in Royal & Sun Alliance, AmAssurance and AmG Insurans.

Yeoh Chi Chern (IT manager) – Mr. Yeoh’s role encompasses system development, support and project management of system implementation. He is involved in the design of the company’s main software, Tune Insurance Policy Gateway (TIPG).

Daniel Su (CEO of Tune Insurance Malaysia Berhad) – Mr. Su joined Tune Group in Feb 2012 and has effectively been the CEO of Oriental Capital Assurance (OCA) since 23 May, which is the date of acquisition by Tune Ins. Holdings. He is on permanent employment, subject to appointment/renewal by Bank Negara every three years. Previously, he was the CEO of MUI Continental Insurance and was credited for turning around the company. He was also with Tokio Marine for 10 years as general manager.

Simon Leong (CFO of Tune Insurance Malaysia Berhad) – Mr. Leong joined OCA in Jul 2011. Prior to this, he was the CFO of Tahan Insurance where he played a key role in turning the company around from a position with negative shareholders’ funds. He was with PanGlobal Insurance Berhad for seven years in various positions, including COO and risk management control.

Goh Ching On (senior general manager, claims operations) – Mr. Goh has more than 20 years of experience in insurance claims, working for MAA Assurance/Zurich Insurance Malaysia and Jerneh Insurance. He is the founding chairman of the National Insurance Claims Society (NICS) of Malaysia and introduced the first electronic paperless claims system in Malaysia. He is an Associate Member of the Australian Insurance Institute and Canadian Risk Management Society, a Certified Financial Planner (Associate) and Fellow Member of Insurance of Canada.

Low Yew Pong (assistant general manager, investment management) – Mr. Low has more than 20 years of experience in securities dealing and the fund management business. He holds a Bachelor of Business Administration (finance and information systems), Chartered Financial Analyst accreditation and an MBA from St. Edward’s University.

Ng Teck Sing (assistant general manager, ICT) – Mr. Ng has more than 25 years of experience in general insurance development and IT management. Previously, he worked for MAA/Zurich Insurance Malaysia and Zurich Technology Services Sdn Bhd, where he oversaw system development and application support for Zurich Insurance Malaysia and MAA Holdings’s other insurance operations overseas.


43

B. Details for the Travel Protection Plan (extracted from Tune Insurance website and subject to changes by the company)

Benefits / coverage

The followings are the details for travel protection plans for one-way trips (offered by TIMB):-

Personal accident benefit

Accident, death and bodily disablement – up to RM300k

Travel inconvenience benefits

Flight cancellation (reimbursement for the cost of flight if the insured person has to cancel the trip due to insured events) – up to original flight cost for domestic / regional flights and up to RM5k for international flights

Baggage and Personal effects – cover loss of damage to baggage, clothing and personal effects of insured person – up to RM1,500 for domestic / regional flights (any one item of RM500 subject to RM50 excess per claim) and up to RM5k for international flights (any one item of RM500 subject to RM50 excess per claim)

Baggage delay – for every 6 hours delayed from time of arrival – up to RM400 (RM200 per 6-hour delay period) for domestic and regional flights and up to RM800 (RM200 per 6-hour delay period) for international flights

AirAsia flight delay - for every 6 hours delayed from original departure time of scheduled flight due to inclement weather, equipment failure or strike – up to RM1.050 (RM150 per 6-hour delay period) for domestic, regional and international flights

Missed flight connection – no onward connecting flight available within 6 hours from the missed scheduled flight due to delay of AirAsia’s incoming connecting flight – up to RM600 (RM300 per 6-hour delay period) for domestic, regional and international flights

On time guarantee – delay more than 2 hours from scheduled departure time caused solely by AirAsia / AirAsia X – up to RM200

The followings are the details for travel protection plans for return trips (offered by TIMB):-

Personal accident benefit

Accident, death and bodily disablement – up to RM125k for domestic / regional flights and RM200l for international flights

Travel inconvenience benefits

Flight cancellation (reimbursement for the cost of flight if the insured person has to cancel the trip due to insured events) – up to original flight cost for domestic / regional flights and up to RM5k for international flights

Flight curtailment (reimbursement for the return flight to Malaysia if the insured person returns due to insured events – up to original flight cost for domestic / regional flights and up to RM5k for international flights.

Baggage and Personal effects (cover loss of damage to baggage, clothing and personal effects of insured person) – up to RM1,500 for domestic / regional flights (any one item of RM500 subject to RM50 excess per claim) and up to RM5k for international flights (any one item of RM500 subject to RM50 excess per claim)


44

Baggage delay - for every 6 hours delayed from time of arrival – up to RM400 (RM200 per 6-hour delay period) for domestic / regional flights and up to RM800 (RM200 per 6-hour delay period) for international flights

AirAsia flight delay - for every 6 hours delayed from original departure time of scheduled flight due to inclement weather, equipment failure or strike – up to RM1.050 (RM150 per 6-hour delay period) for domestic, regional and international flights

Common carrier delay – for every 6 hours delayed from original departure time of scheduled flight due to inclement weather, equipment failure or strike – up to MR1,050 (RM150 per 6-hour delay period) for domestic, regional and international flights.

Missed flight connection – no onward connecting flight available within 6 hours from the missed scheduled flight due to delay of AirAsia’s incoming connecting flight – up to RM600 (RM300 per 6-hour delay period) for domestic, regional and international flights

Loss of personal money – up to RM1,000 for international flights

Expenses incurred arising from loss of travel documents – up to RM1,000 for international flights

On-time guarantee – delay more than 2 hours from scheduled departure time caused solely by AirAsia / AirAsia X – up to RM200 for domestic, regional and international flights

Medical and evacuation expenses

Accidental medical reimbursement – RM20,000 (excess RM50 per claim) for domestic / regional flights

Medical expenses reimbursement – up to RM175k (excess RM50 per claim) for international flights

Emergency medical evacuation and mortal remains repatriation – reimbursement of expenses incurred due to accidental injury or death – RM100k and up to RM300k for international flights

Mortal remains repatriation – reimbursement of expenses incurred due to accidental death or sickness – up to RM300k for international flights

Compassionate visit – up to RM5k for international flights

Personal liability – up to RM500k for international flights

Coverage of accompanying infant – for one infant who is named in the confirmation slip – personal accident benefit up to 10% of the stated limit or RM12,500 for domestic / regional flights and personal accident benefit up to 10% of the stated limit or RM20k

Plan rates

The rates for the various plans are as follows:-

AirAsia insure one-way cover domestic – RM7.50 online and RM10.50 offline

AirAsia insure one-way cover regional – RM9.50 online and RM12.50 offline

AirAsia insure one-way cover international – RM15.00 offline and RM18 offline

AirAsia insure return cover domestic – RM18.00 online and RM21.00 offline


45

AirAsia insure return cover regional – RM21.00 online and RM24.00 offline

AirAsia insure return cover international (1-10 days) – RM29.00 online and RM32.00 offline

AirAsia insure return cover international (11-30 days) – RM49.00 online and RM52.00 offline


46

C. Details for AirAsia Lifestyle Protection Plan

The group’s another product marketed to AirAsia customers are Lifestyle Protection Plan, as follows:-

a) Cancer Plan

A 15-year protection plan providing death and cancer coverage.

Death benefit (all causes) – in the event of death, the insured will be paid total sum assured of up to a maximum of RM30k

Cancer benefit – in the event the insured is diagnosed with cancer, the insured will be paid up to RM100k. This amount may be used to cover the medical costs for treating of the disease.

Maturity benefit – if no claims are made during the term of policy, the insured will get back the total annual premium paid on the life coverage upon maturity of the policy.

b) Accident and hospital income plan

A term protection plan with coverage until age 70, which provides death, accidental permanent total disability and hospital income benefits.

Death benefit – in the event of death due to natural causes, the company will pay the total amount of sum assured to the insured’s nominee. For selected plans, in the event of death due to natural causes occurring within 24 months from the policy date, the total premiums paid will be refunded and paid to the nominee instead of the sum assured.

Accidental death or accidental total permanent disability benefit – if the accident causes total permanent disability or death, a lump sum benefit will be payable to the insured or the nominee.

Accidental hospital income benefit – the insured will receive a daily income for the duration of its hospitalisation up to a maximum of 365 days if the insured is hospitalised due to an accident. The daily income will be doubled if the accident and hospitalisation happens overseas.

Accidental intensive care unit benefit – the insured will receive a daily income of up to a maximum of 30 days if the insured is hospitalised due to an accident. The daily income will be doubled if the accident happens overseas and hospitalised overseas.

Above products are offered through AIA Direct Market Channel, giving customers the flexibility on added convenience of purchasing these products over the phone.


47

D. Products offered to Tune Hotels customers (source: Tune Hotels website and subject to changes by the company)

The following are the products offered to the customers of Tune Hotels in Malaysia:-

Accidental Death & Permanent Disablement – RM50,000

Medical expenses – up to RM500

Subject to an excess of RM50 per claim

Emergency Medical Evacuation – up to RM1,000

Expenses incurred for an emergency medical transport to the nearest medical facility that is adequately equipped to treat the insured person’s medical condition

Hospital allowance – up to RM50 per day

Hospitalised for more than 12 hours for treatment up to maximum of 30 days

Curtailment expenses – up to RM2,000

Reimbursement of hotel room charges due to (a) being called for jury services, (b) home being uninhabitable due to fire, storm or flood, (c) cancellation due to hijack, (d) return home early due to death of an immediate family member, and (e) serious injury or serious illness of an immediate family member

Loss of travel document, personal luggage and personal effects subject to an excess of RM50 per claim – up to RM300

Delay check-in (excluding overbook of room or extension of hours allowed by the hotel) – up to RM250 (RM50 per hour delay)

24-hours travel assistance

Commencement of cover – the cover commences upon check-in physically at the hotel

Expiry of cover – the cover ends upon check-out physically at 10am on the day of the scheduled check-out or upon expiry of 10 days from the first check-in date whichever is earlier.


48

E. Developments and trends for air travel industry

The following section touches on the key developments and trends for the air travel industry, primarily focusing on the low-cost carriers (LCCs). The information is provided by Strategic Airport Planning (S-A-P), an independent aviation consultant. The information was provided together with the prospectus for the listing of Tune Ins Holdings.

This is highlighted because Tune Insurance is operating an online travel insurance business with a tie-up with AirAsia. The outlook for this business will largely hinge on the prospects for air travel.

As background information, the S-A-P Group (S-A-P) is an aviation consulting firm that specializes in the preparation of aviation activity forecasts and strategic business plans. S-A-P has been preparing forecasts of aviation activity in the Asia Pacific region for the past 16 years. In addition, S-A-P reports have been used for the initial public offering circulars of several Southeast Asia-based carriers, including AirAsia, Thai AirAsia, AirAsia X, Garuda Indonesia Airlines and Tiger Airways.

Factors affecting air travel

Historically, air travel activity has shown a strong statistical relationship with overall economic activity, as measured by gross domestic product (GDP). Over the last four decades, world airline activity has grown at an average rate per annum of approximately double that of world GDP. From 1971 to 2011, world GDP registered a CAGR of 3.1% while world airline RPKs (revenue passenger kilometres) recorded approximately twice the rate with a CAGR of 6%.

In most areas of the world, per capita income correlates well with per capita air travel levels. Countries with high per capita incomes tend to have high levels of air travel while countries with low per capita incomes tend to have lower-than-average levels of air travel.

Urbanisation rates can be an indicator of propensity to travel by air because urban dwellers typically have higher-than-average income levels and are usually located in closer proximity to airports than non-urban dwellers. The development of existing and new urban centres is expected to create new destinations for regional travel in Asia.

Countries in Southeast Asia typically have lower rates of urbanisation than do those of the world and the Asia Pacific region in total. As shown in the following table, the percentages of the population living in urban areas are projected to be only 48% in Indonesia, 52.6% in the Philippines and 38.9% in Thailand. On this score, we see ample room for the urbanisation to increase in these countries, which could lead to higher levels of air travels.

Introduction of LCCs higher affordability for air travel...

S-A-P pointed out that much of the growth in air travel in Malaysia as well as the Philippines and Australia can be attributed to the introduction of low-cost carrier (LCC) services between these countries, including those of the AirAsia Group and other carriers. The introduction of LCCs increased the affordability for air travel, which in turn expanded the size for the market.

... stronger growth in air travel

Aviation activity in the Asia Pacific region has expanded swiftly since 2001. From 2001 to 2011, RPKs in the Asia Pacific region grew 92.1% compared to a growth of 69.2% in Europe’s RPKs in the same period. S-A-P believes that the growth in the Asia Pacific region, the fastest in the world, is the result of strong growth by LCCs. Asia Pacific region passenger traffic, as measured by RPKs, is now greater than that of North America.


49

Passenger air travel within Southeast Asia posted a CAGR of 7.3% from 1985 to 2010 in terms of RPKs and is projected to record CAGR of 7.4% from 2011 to 2030.

Figure 31: Urbanisation indicators for selected countries in Asia Pacific region

Number of

cities (a)

Share of urban

population in

cities of 1 million

or greater

Estimated CAGR Actual Forecast Actual Actual

Country 2011 2011~2015 2010 2020 2010 2010

Indonesia 241,030,000 1.4% 44.3% 48.1% 7 20.2%

Philippines 95,856,000 2.0% 48.9% 52.6% 2 28.7%

Vietnam 89,316,000 1.2% 30.4% 37.0% 2 33.6%

Thailand 64,076,000 0.6% 34.0% 38.9% 2 42.9%

Myanmar 62,417,000 2.0% 33.7% 40.7% 3 31.2%

Malaysia 28,731,000 1.7% 72.2% 78.5% 3 17.9%

Cambodia 15,103,000 1.0% 21.1% 23.8% 1 47.8%

Laos 6,556,000 1.9% 33.2% 44.2% -- --

Singapore 5,274,000 1.7% 100.0% 100.0% 1 100.0%

East Timor 1,093,000 2.3% 100.0% 100.0% -- --

Brunei 425,000 2.2% 100.0% 100.0% -- --

Countries shown above 609,877,000 1.5% 42.0% (b) 21 27.5%

China 1,348,121,000 0.5% 47.0% 55.0% 94 43.6%

India 1,206,917,000 1.3% 30.0% 33.9% 43 41.2%

Japan 127,819,000 -0.4% 90.5% 95.3% 8 54.9%

South Korea 49,006,000 0.3% 82.9% 85.4% 8 57.7%

Australia 22,729,000 1.3% 88.9% 93.8% 5 70.6%

New Zealand 4,416,000 1.0% 86.2% 86.8% 1 37.0%

World Total 6,865,208,000 1.2% 50.4% 54.4% 449 39.8%

______________

Sources: IMF World Economic Outlook Database, April 2012 and UN World Urbanization Prospects: 2011 revision.

Note: 2010~2015 population growth rates represent IMF forecasts. Some 2011 population amounts are estimated.

(a) Cities or agglomerations with populations of greater than 1 million persons.

(b) Average urbanization share not available because the IMF does not publish 2020 population forecasts.

Cities of 1 million

persons or greater

Population

Urbanization

(share of total population

living in urban areas)

SOURCES: IMF WORLD ECONOMIC OUTLOOK DATABASE, UN WORLD URBANISATION PROSPECTS, S-A-P REPORTS

The strongest growth coming from Southeast Asia

Global passenger air travel, as measured in revenue passenger kilometres (RPKs), delivered CAGR of 4.5% from 2001 to 2010 and is projected to post CAGR of 5.1% from 2011 to 2030. The international tourism in Asia Pacific is expected to expand at a pace of 6.2% in 2010-11, the fastest of any major world region. The strongest of any sub-region comes from Southeast Asia with an expected expansion of 10.4% in 2010-11 (please refer to the following table).

Adopting an “open skies” policy

Another catalyst for the growth in air travel in Asia Pacific is the liberalisation by the governments of various countries. Subsequent to an aviation liberalisation roadmap adopted by ASEAN member states in 2004, in Nov 10, the member states reaffirmed their collective commitment to building an ASEAN Single Aviation Market by 2015. The Nov 2010 ASEAN Multilateral Agreement on the Full Liberalization of Passenger Air Services (MAFLPAS) and its two Protocols provide for further expansion of the scope of the ASEAN Multilateral Agreement on Air Services (MAAS) to include other ASEAN cities.


50

In addition, Chinese government aviation officials have signed an agreement with ASEAN to build a more liberal air service framework between China and ASEAN countries. Other developments contributing to the eventual achievement of open skies are potential similar agreements between ASEAN and India as well as ASEAN and Korea.

The December 2008 lifting of restrictions on the Kuala Lumpur-Singapore route offered a good example of the positive impact of a liberalisation. Capacity, in terms of weekly flight frequencies, on this route increased by 72.5% yoy in Sep 09 following the relaxation.

Figure 32: International tourist arrivals by region and sub-region (2010-11)

World share Growth

2010 2011 2011 2010~2011

Northeast Asia 111.5 115.8 11.8% 3.9%

Southeast Asia 69.9 77.2 7.9% 10.4%

South Asia 11.5 12.4 1.3% 7.8%

Oceania 11.6 11.7 1.2% 0.9%

Subtotal (Asia Pacific) 204.4 217.0 22.1% 6.2%

Europe 474.7 503.7 51.3% 6.1%

Americas 149.7 155.9 15.9% 4.1%

Middle East 60.4 55.4 5.6% -8.3%

Africa 49.7 50.1 5.1% 0.8%

Subtotal (Rest of World) 734.5 765.1 77.9% 4.2%

World Total 938.9 982.1 100.0% 4.6%

____________

Source: United Nations World Tourism Organization, World Tourism Barometer, May 2012.

Note: Arrivals may include non-air border crossings.

Arrivals (millions)

Tourist Arrivals

SOURCES: UNITED NATIONS WORLD TOURISM ORGANISATION, WORLD TOURISM BAROMETER, S-A-P REPORTS

A 6.8% 10-year growth for Malaysia

Notwithstanding several disruptions to travel in the region from economic downturns and natural disasters, the total tourist international arrivals in Malaysia have registered a CAGR of 6.8% over the past decade. The highest proportion came from the neighbouring country, Singapore, which made up 54.1% of the tourist arrivals in 2011. But the fastest growth was for arrivals from India, which delivered a CAGR of 17.1% in 2001-11.


51

Figure 33: International tourist arrivals in Malaysia

___________

Source: Tourism Malaysia, September 2012.


-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

SOURCES: TOURISM MALAYSIA, S-A-P REPORTS

An 11% 10-year growth for Thailand

Air passenger activity at commercial airports in Thailand posted CAGR of 10.9% from 2009 to 2011. Passenger movements of the AirAsia Group carriers achieved CAGR of 17.2% during the period.

The largest share of passenger traffic in Thailand was carried by Thai Airways International followed by Thai AirAsia, which is the only low-cost carrier that serves both domestic and international destinations from Suvarnabhumi International Airport.


52

Figure 34: International tourist arrivals in Thailand

___________

Source: Ministry of Tourism and Sports, Thailand, 2012.


-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

SOURCES: MINISTRY OF TOURISM AND SPORTS, THAILAND, S-A-P REPORTS

A strong growth in Indonesia

As shown in the following chart, passenger movements in Indonesia have been growing significantly since 2001, which is in line with the country’s strong economic growth.


53

Figure 35: International tourist arrivals in Indonesia

___________

Source: Badan Pusat Statistik, Indonesia, 2012.


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

SOURCES: BADAN PUSAT STATISTIK, INDONESIA, S-A-P REPORTS

A 12% 10-year growth for the Philippines

The passenger movements in the Philippines achieved CAGR of 12% from 2009 to 2011. LCC Cebu Pacific has the largest share of passenger activity in the Philippines.


54

Figure 36: International tourist arrivals in the Philippines

Source: Philippines Department of Tourism, 2012


-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

SOURCES: PHILIPPINES DEPARTMENT OF TOURISM, S-A-P REPORTS

The growth of LCCs gaining traction in Japan

Efforts in 1998 to deregulate Japan’s domestic aviation industry led to the creation of several discount carriers, including Skymark Airlines and Hokkaido International Airlines. However, the LCC model has taken longer to fully develop in Japan due in part to high operating costs, constrained airport capacity and competition from train services in the country. LCC capacity has recently started to increase rapidly, with LCC shares of domestic seat capacity offered in Japan at 21.9% in 2012, more than double the LCC seat market share of 9% in 2011.


55

F. Developments and trends for insurance sector

In this section, we focus on the key developments and trends for the insurance sector in the region. The information is provided by Milliman, which is a consultant for the insurance sector. Milliman is owned and managed by approximately 400 principals, who have been elected in recognition of their technical, professional and business achievements. Its sole business is providing independent consulting services. Milliman Ltd’s clients include the leading insurance institutions in the Asia Pacific region. In particular, Milliman Ltd performed actuarial services for PICC Property and Casualty Limited and China Pacific Insurance Group in their proposed initial public offerings. Milliman acted as an independent adviser for Tune Ins and its report is included in the prospectus.

17% growth in Asia’s non-life premiums in 2006-11

The premiums for the non-life insurance industry in Asia ex-Japan have been growing strongly, achieving a CAGR of 17% from 2006 to 2011 despite a slowdown in growth in 2008 due to the global financial crisis. Total non-life premiums grew from US$102.7bn in 2006 to US$225.4bn in 2011. In this period, Asia ex-Japan consistently outperformed other regions in terms of the growth in insurance premiums.

Figure 37: Nominal non-life premiums for various countries/regions

US$ m 2006 2007 2008 2009 2010 2011

China 25,708 33,810 44,986 53,872 71,628 87,319

South Korea 30,342 35,019 30,046 34,835 42,905 51,223

Taiwan 10,318 10,708 11,517 11,444 12,505 14,283

India 5,747 7,597 7,299 8,274 10,395 12,187

Singapore 3,450 4,204 4,827 6,037 6,688 8,188

Thailand 3,240 3,764 4,321 4,336 5,285 6,028

Malaysia 2,683 2,981 3,175 3,331 4,434 4,965

Indonesia 2,025 2,210 2,199 2,777 3,839 4,655

Hong Kong 2,339 2,480 2,736 2,961 3,080 3,293

Vietnam 419 514 672 800 916 1,027

Philippines 641 774 857 690 865 991

Kazakhstan 974 1,164 1,062 705 823 989

Sri Lanka 250 282 354 365 330 382

Bangladesh 129 155 183 205 229 255

Asia ex Japan 102,742 123,318 135,406 153,259 189,177 225,439

Europe 573,703 649,538 707,615 660,968 658,573 713,699

North America 690,708 714,090 719,072 702,425 718,847 736,152

Japan 95,895 96,084 103,022 108,619 117,246 130,741 SOURCES: SWISS REINSURANCE COMPANY SIGMA REPORTS, MILLIMAN


56

Figure 38: Nominal non-life insurance market growth

Location 2006~2007 2007~2008 2008~2009 2009~2010 2010~2011

CAGR

(2006~2011)

China 31.5% 33.1% 19.8% 33.0% 21.9% 27.7%

Vietnam 22.7% 30.7% 19.0% 14.5% 12.1% 19.6%

Singapore 21.9% 14.8% 25.1% 10.8% 22.4% 18.9%

Indonesia 9.1% -0.5% 26.3% 38.2% 21.3% 18.1%

India 32.2% -3.9% 13.4% 25.6% 17.2% 16.2%

Bangladesh 20.2% 18.1% 12.0% 11.7% 11.4% 14.6%

Thailand 16.2% 14.8% 0.3% 21.9% 14.1% 13.2%

Malaysia 11.1% 6.5% 4.9% 33.1% 12.0% 13.1%

South Korea 15.4% -14.2% 15.9% 23.2% 19.4% 11.0%

Philippines 20.7% 10.7% -19.5% 25.4% 14.6% 9.1%

Sri Lanka 12.8% 25.5% 3.1% -9.6% 15.8% 8.8%

Hong Kong 6.0% 10.3% 8.2% 4.0% 6.9% 7.1%

Taiwan 3.8% 7.6% -0.6% 9.3% 14.2% 6.7%

Kazakhstan 19.5% -8.8% -33.6% 16.7% 20.2% 0.3%

Asia ex Japan

Europe 13.2% 8.9% -6.6% -0.4% 8.4% 4.5%

North America 3.4% 0.7% -2.3% 2.3% 2.4% 1.3%

Japan 0.2% 7.2% 5.4% 7.9% 11.5% 6.4%

20.0% 9.8% 13.2% 23.4% 19.2% 17.0%

SOURCES: SWISS REINSURANCE COMPANY SIGMA REPORTS, MILLIMAN

But penetration still low in most Asian countries

Notwithstanding the strong insurance market growth in recent years, markets such as Malaysia, Thailand, Indonesia and the Philippines all have reported non-life insurance penetration rates of below 2% and corresponding density rates under US$200, which are much lower than the mature markets in the region as well as Europe, North America and Japan.

According to a report published by the Geneva Association in 2000 about the correlation between per capita GDP and insurance penetration, due to the change in income elasticity of demand for insurance while the economy matures, the insurance penetration could increase at a higher rate than the per capita GDP. This is better represented by non-life than life insurance penetration.

Figure 39: Non-life insurance penetration in 2011

-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%

Nor

th A

mer

ica

Eur

ope

Japa

n

Asi

a ex

Jap

an

Sou

th K

orea

Tai

wan

Mal

aysi

a

Tha

iland

Sin

gapo

re

Hon

g K

ong

PR

Chi

na

Vie

tnam

Indi

a

Sri

Lank

a

Indo

nesi

a

Kaz

akhs

tan

Phi

lippi

nes

Ban

glad

esh

2011 CAGR (2006-2011)



57

Figure 40: Non-life insurance density (US$) in 2011

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

500

1,000

1,500

2,000

2,500

Nor

th A

mer

ica

Eur

ope

Japa

n

Asi

a ex

Jap

an

Sou

th K

orea

Sin

gapo

re

Tai

wan

Hon

g K

ong

Mal

aysi

a

Tha

iland

PR

Chi

na

Kaz

akhs

tan

Indo

nesi

a

Sri

Lank

a

Vie

tnam

Indi

a

Phi

lippi

nes

Ban

glad

esh

2011 CAGR (2006-2011)


Travel insurance in Asia ex-Japan

Travel insurance has been growing strongly in Asia ex-Japan in the past few years due to the following factors (1) continuous economic growth, (2) increased population, (3) the expanding middle class, and (4) the emergence of LCCs that makes air travelling more affordable to more people. There is an increasing trend of the purchase of travel insurance due to the higher awareness of the risks of travel, the high cost of overseas medical treatment and the financial losses incurred from trip cancellations.

Travel insurance is a fairly simple and standardised product in Asia, typically providing coverage for travel delays, loss or damage of baggage, personal liability, medical expenses, international emergency assistance and personal accidents. Insurers usually offer several product choices with varying amount of coverage, ranging from the lower-end ones for domestic travel to higher-end ones for international travel with substantially higher limits.

Figure 41: A typical example of travel insurance in Asia

Plan 1 Plan 2Domestic/Regional

Travel

International

Travel

Accidental Death and Bodily Disablement Up to 125,000 Up to 250,000

Medical Expenses Up to 50,000 Up to 200,000

Emergency Medical Evacuation and Repatriation of Mortal Remains Up to 100,000 Unlimited

Compassionate Visit N/A Up to 5,000

Travel Cancellation Up to 1,000 Up to 10,000

Up to 150 Up to 1,500

(150 per 6 hour (150 per 6 hour

delay period) delay period)

Up to 1,000 Up to 5,000

(Max 500 per item) (Max 500 per

item)Loss of Money N/A Up to 1,000

Loss of Travel Documents N/A Up to 2,000

Personal Liability N/A Up to 500,000

Travel Assistance Service Included Included

Benefits (Amounts in RM)

Flight Delay

Lost or Damaged Baggage

SOURCES: MILLIMAN

A total of US$5bn non-life premium generated in Malaysia

The non-life insurance market in Malaysia is the seventh-largest in the Asia ex-Japan region, generating approximately US$5bn in non-life premiums in


58

2011. There were 28 non-life direct insurers in Malaysia in 2011, although the number has been reducing since the implementation of Risk Based Capital (RBC) regulation in 2009.

Motor insurance has the largest share in Malaysia, accounting for almost half of the non-life premiums, followed by fire and accident and health.

Figure 42: Sectorial breakdown of non-life premiums in Malaysia (2011)

A&H14%

Motor46%

Marine10%

Fire17%

Others13%


Figure 43: Annual growth rates of the premiums of various non-life segments in Malaysia

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2006/07 2007/08 2008/09 2009/10 2010/11

A&H All Lines of Business Motor

Fire Marine Others


Non-life operating profits have been improving since 2007, thanks to the lowest combined ratio in the last six years of 89.8% in 2011. The 6-year average combined ratio from 2006 to 2011 was 94%. Based on Bank Negara Malaysia statistics, the improved underwriting experience is driven by better motor


59

insurance loss ratios. Concomitantly, net investment income grew 13.1% in 2011, the highest rate in 2006-11.

Following motor and fire, accident and health (A&H) insurance is the third-largest line of business in Malaysia. This segment includes general personal accident, health and travel insurance. It posted annual double-digit premium growth from 2006 to 2011, except for 2009 due to the global financial crisis. A&H insurance has significantly outperformed the overall non-life market premium growth as evidenced by the increase of its share of total non-life premium from 11.3% in 2006 to 14.2% in 2011. This is driven by an increase in healthcare expenditures, a rise in the volume of outbound tourists and growing consumer awareness of the importance of insurance products.

Thailand the sixth-largest non-life market in Asia ex-Japan

Thailand is ranked no. 6 in terms of the size of non-life insurance markets in the Asia ex-Japan region. It had a total of approximately US$6bn non-life premiums in 2011. The penetration of non-life insurance is still low at only 1.7% in 2011 while the density rate only stood at US$88. The Thai insurance market is also fragmented with a total of 67 non-life direct insurers.

Similar to Malaysia, the motor insurance segment is the largest, making up about 60% of total non-life insurance premiums in 2011. Personal accident (PA) is ranked second although its share of 11% was way behind motor’s. Surprisingly, the proportion of fire insurance (the third-largest) was small at only 6%.

Figure 44: Sectorial breakdown of non-life premiums in Thailand (2011)

PA11%

Motor60%

Marine3%

Fire6%

Others20%

SOURCES: THE OFFICE OF INSURANCE COMMISSION, MILLIMAN

PA insurance includes both general PA insurance as well as travel insurance products. There was a strong expansion of this segment with a pace of exceeding 20% almost every year from 2006 to 2011, even during the economic downturn in 2008-09, while the overall Thai non-life market only chalked up a CAGR of 8% in the same period.


60

Figure 45: PA gross written premiums in Thailand (THB m)

15.0%

20.0%

25.0%

30.0%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2006 2007 2008 2009 2010 2011P

Premium Growth Rate


Figure 46: Annual growth rates of the premiums of various non-life segments in Thailand

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2006/07 2007/08 2008/09 2009/10 2010/11P

PA All Lines of Business Motor

Fire Marine Others


The non-life operating profits in Thailand reached its peak in 2008 when the combined ratio was 94.8% and the net investment income peaked at THB4.07bn. Subsequently, the industry’s combined ratio increased to 97.8% in 2010. This was compounded by the reduction of net interest income in the same period due to interest rate cuts. The industry expects an underwriting loss for 2011 due to the severe floods in the country between Sep and Dec 11.


61

Figure 47: The non-life combined ratio in Thailand

92.0%

93.0%

94.0%

95.0%

96.0%

97.0%

98.0%

99.0%

100.0%

2006 2007 2008 2009 2010


Indonesia the eighth-largest non-life market despite huge population

Despite having the largest population in Southeast Asia, Indonesia is only ranked number eight in terms of the size of its non-life market in the Asia ex-Japan region, with approximately US$4.7bn of non-life premium recorded in 2011. The penetration is low at only 0.6% in 2011 while the density rates were at US$88.

Similarly, the Indonesia non-life insurance market is fragmented, despite some consolidation in recent years. There were 87 non-life direct insurers as of 2010.

In terms of the breakdown of the premiums, motor, property and A&H insurance made up more than 70% of total non-life insurance premiums in Indonesia. A&H was the third-largest line of business by gross written premium in Indonesia in 2010, after motor and property.

Figure 48: Sectorial breakdown of non-life premiums in Indonesia (2010)

A&H10%

Others18%

Property30%

Motor32%

Marine10%

SOURCES: BAPEPAM-LK, MILLIMAN


62

Figure 49: Annual growth rates of the premiums of various non-life segments in Indonesia

-10%

0%

10%

20%

30%

40%

50%

2007 2008 2009 2010

A&H All Lines of Business Property

Motor Marine Others


Figure 50: A&H gross written premiums in Indonesia (Rp bn)

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

-

500

1,000

1,500

2,000

2,500

3,000

2006 2007 2008 2009 2010

Premium Growth Rate


The Philippines a smaller market

The Philippines is ranked the 11th in market size in the Asia ex-Japan region, with approximately US$1bn of non-life premiums in 2011. We see opportunities for growth as the country has the second-biggest population in Southeast Asia.


63

DISCLAIMER

This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

By accepting this report, the recipient hereof represents and warrants that he is entitled to receive such report in accordance with the restrictions set forth below and agrees to be bound by the limitations contained herein (including the “Restrictions on Distributions” set out below). Any failure to comply with these limitations may constitute a violation of law. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this report may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB.

Unless otherwise specified, this report is based upon sources which CIMB considers to be reasonable. Such sources will, unless otherwise specified, for market data, be market data and prices available from the main stock exchange or market where the relevant security is listed, or, where appropriate, any other market. Information on the accounts and business of company(ies) will generally be based on published statements of the company(ies), information disseminated by regulatory information services, other publicly available information and information resulting from our research.

Whilst every effort is made to ensure that statements of facts made in this report are accurate, all estimates, projections, forecasts, expressions of opinion and other subjective judgments contained in this report are based on assumptions considered to be reasonable as of the date of the document in which they are contained and must not be construed as a representation that the matters referred to therein will occur. Past performance is not a reliable indicator of future performance. The value of investments may go down as well as up and those investing may, depending on the investments in question, lose more than the initial investment. No report shall constitute an offer or an invitation by or on behalf of CIMB or its affiliates to any person to buy or sell any investments.

CIMB, its affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, CIMB, its affiliates and its related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report.

CIMB or its affiliates may enter into an agreement with the company(ies) covered in this report relating to the production of research reports. CIMB may disclose the contents of this report to the company(ies) covered by it and may have amended the contents of this report following such disclosure.

The analyst responsible for the production of this report hereby certifies that the views expressed herein accurately and exclusively reflect his or her personal views and opinions about any and all of the issuers or securities analysed in this report and were prepared independently and autonomously. No part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations(s) or view(s) in this report. CIMB prohibits the analyst(s) who prepared this research report from receiving any compensation, incentive or bonus based on specific investment banking transactions or for providing a specific recommendation for, or view of, a particular company. Information barriers and other arrangements may be established where necessary to prevent conflicts of interests arising. However, the analyst(s) may receive compensation that is based on his/their coverage of company(ies) in the performance of his/their duties or the performance of his/their recommendations and the research personnel involved in the preparation of this report may also participate in the solicitation of the businesses as described above. In reviewing this research report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request.

Reports relating to a specific geographical area are produced by the corresponding CIMB entity as listed in the table below. The term “CIMB” shall denote, where appropriate, the relevant entity distributing or disseminating the report in the particular jurisdiction referenced below, or, in every other case, CIMB Group Holdings Berhad ("CIMBGH") and its affiliates, subsidiaries and related companies.

Country CIMB Entity Regulated by

Australia CIMB Securities (Australia) Limited Australian Securities & Investments Commission

Hong Kong CIMB Securities Limited Securities and Futures Commission Hong Kong

Indonesia PT CIMB Securities Indonesia Badan Pengawas Pasar Modal & Lembaga Keuangan (Bapepam)

India CIMB Securities (India) Private Limited Securities and Exchange Board of India (SEBI)

Malaysia CIMB Investment Bank Berhad Securities Commission Malaysia

Singapore CIMB Research Pte. Ltd. Monetary Authority of Singapore

South Korea CIMB Securities Limited, Korea Branch Financial Services Commission and Financial Supervisory Service

Thailand CIMB Securities (Thailand) Co. Ltd. Securities and Exchange Commission Thailand

(i) As of March 29, 2013 CIMB has a proprietary position in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report:

(a) AIA Group, AirAsia Bhd, China Life Insurance, China Pacific Insurance, China Taiping Insurance, Public Bank Bhd, Tune Ins Holdings Bhd

(ii) As of April 1, 2013, the analyst(s) who prepared this report, has / have an interest in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report:

(a) -

The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CIMB may or may not issue regular reports on the subject matter of this report at any frequency and may cease to do so or change the periodicity of reports at any time. CIMB is under no obligation to update this report in the event of a material change to the information contained in this report. This report does not purport to contain all the information that a prospective investor may require. CIMB or any of its affiliates does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. Neither CIMB nor any of its affiliates nor its related persons shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.

This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates’ clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments thereof.

Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors.

Australia: Despite anything in this report to the contrary, this research is provided in Australia by CIMB Securities (Australia) Limited (“CSAL”) (ABN 84 002 768 701, AFS Licence number 240 530). CSAL is a Market Participant of ASX Ltd, a Clearing Participant of ASX Clear Pty Ltd, a Settlement Participant of ASX Settlement Pty Ltd, and, a participant of Chi X Australia Pty Ltd. This research is only available in Australia to persons who are “wholesale clients” (within the meaning of the Corporations Act 2001 (Cth)) and is supplied solely for the use of such wholesale clients and shall not be distributed or passed on to any other person. This research has been prepared without taking into account the objectives, financial situation or needs of the individual recipient.

France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is not intended as a solicitation for the purchase of any financial instrument.

Hong Kong: This report is issued and distributed in Hong Kong by CIMB Securities Limited (“CHK”) which is licensed in Hong Kong by the Securities and Futures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CIMB Securities Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected.


64

CHK has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CHK. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CHK. Unless permitted to do so by the securities laws of Hong Kong, no person may issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the securities covered in this report, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong).

India: This report is issued and distributed in India by CIMB Securities (India) Private Limited (“CIMB India”) which is registered with SEBI as a stock-broker under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 and in accordance with the provisions of Regulation 4 (g) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, CIMB India is not required to seek registration with SEBI as an Investment Adviser.

The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from the other activities of CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CIMB India or its affiliates.

Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (“CIMBI”). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CIMBI. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBI. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesia residents except in compliance with applicable Indonesian capital market laws and regulations.

Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (“CIMB”). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CIMB. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB.

New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978.

Singapore: This report is issued and distributed by CIMB Research Pte Ltd (“CIMBR”). Recipients of this report are to contact CIMBR in Singapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBR..

As of March 29, 2013, CIMBR does not have a proprietary position in the recommended securities in this report.

South Korea: This report is issued and distributed in South Korea by CIMB Securities Limited, Korea Branch ("CIMB Korea") which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea.

The views and opinions in this research report are our own as of the date hereof and are subject to change, and this report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial investment instruments and it is not intended as a solicitation for the purchase of any financial investment instrument.

This publication is strictly confidential and is for private circulation only, and no part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB Korea.

Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden.

Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China.

Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBS.

Corporate Governance Report:

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range 90 – 100 80 – 89 70 – 79 Below 70 or No Survey Result

Description Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.

United Kingdom and Europe: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (“CIMB UK”). CIMB UK is authorised and regulated by the Financial Services Authority and its registered office is at 27 Knightsbridge, London, SW1X 7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are persons that are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”); (c) are persons falling within Article 49 (2) (a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom; or (e) are persons to whom an invitation or inducement to


65

engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.

Only where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent "investment research" under the applicable rules of the Financial Services Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research.

United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, and is distributed solely to persons who qualify as "U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Spitzer Chart for stock being researched ( 2 year data )

1.20

1.25

1.30

1.35

1.40

1.45

1.50

Feb-13 Feb-13 Mar-13 Mar-13 Mar-13

Price Close

Rating Distribution (%) Investment Banking clients (%)

Outperform/Buy/Trading Buy 51.8% 8.6%

Neutral 34.8% 4.3%

Underperform/Sell/Trading Sell 13.4% 7.1%

Distribution of stock ratings and investment banking clients for quarter ended on 28 February 2013

956 companies under coverage

Recommendation Framework #1 *

Stock Sector

OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return

by 5% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to

outperform the relevant primary market index over the next 12 months.

NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant benchmark's total

return.

NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in

line with the relevant primary market index over the next 12 months.

UNDERPERFORM: The stock's total return is expected to be below a relevant benchmark's total

return by 5% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to

underperform the relevant primary market index over the next 12 months.

TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return

by 5% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to

outperform the relevant primary market index over the next 3 months.

TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total

return by 5% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to

underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Korea Exchange, Taiwan

Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market

volatility or other justifiable company or industry-specific reasons.

CIMB Research Pte Ltd (Co. Reg. No. 198701620M)


66

Recommendation Framework #2 **

Stock Sector

OUTPERFORM: Expected positive total returns of 10% or more over the next 12 months. OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number

of stocks that are expected to have total returns of +10% or better over the next 12 months.

NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal

number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or

(ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%;

both over the next 12 months.

UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number

of stocks that are expected to have total returns of -10% or worse over the next 12 months.

TRADING BUY: Expected positive total returns of 10% or more over the next 3 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number

of stocks that are expected to have total returns of +10% or better over the next 3 months.

TRADING SELL: Expected negative total returns of 10% or more over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number

of stocks that are expected to have total returns of -10% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily

outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.

AAV – not available, ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH - Good, BEC - Very Good, BECL - Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY – Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH – Very Good, ITD - Good, IVL - Very Good, JAS – Very Good, KAMART – not available, KBANK - Excellent, KK – Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS – Excellent, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM – Very Good, TICON – Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TUF - Very Good, WORK – Good.

40 SHORT TERM TMarket Cap Avg Daily Turnover Free Float...

Documents

Transcript of 40 SHORT TERM TMarket Cap Avg Daily Turnover Free Float...