- What is the purpose of Tune Ins Holdings Berhad’s IPO?
On 23 September 2013, Tune Ins Holdings Berhad (TIHB), an insurance products provider, announced a press release regarding the prospectus for its Initial Public Offering (IPO). TIHB announced it’s listing on the Main Market of Bursa Malaysia Securities Berhad (Bursa Securities). Under this IPO, TIHB will sell up to 210,224,900 ordinary shares to Malaysian and some particular influential investors, including Bumiputera investors approved by the Ministry of Finance (Tune Insurance). As per to the prospectus in the press release, earnings of the IPO procedure will employed in the ‘repayment of bank borrowings (59.86%), working capital (12.24%), strategic investments (22.50%) and payment of listing expenses’. TIHB was looking to generate capital mainly to ignite the company’s business prospective and connection with low-cost carrier, AirAsia (The Star Online.).
2) List 3 competitive strengths of the company that may attract investors to subscribe the company’s shares.
According to an article published by CMIB, TIHB holds the following three competitive edges that will attract investors. THIB has a unique business model as compared with other insurance companies within Malaysia. With this unique model, TIHB is on the verge of a regional expansion to 14 other countries. Along with the prospective of business with AirAsia, low claims ratio of only 3-4% for the travel insurance business and its emphasis on the increasing market for health insurance, TIHB has impressive future potentials. It is also looking forward from benefiting from the high growth potentials of AirAsia. AirAsia is still in its expansion zone with an intention of adding about 60 airplanes within the course of next two years, and also tampering into new enormous markets like Japan and India.
TIHB is also ‘projecting a healthy net profit growth of 17.8% in FY14 and 14.3% in FY15’ (CMIB). More over with the staggering expected increase in the figures of gross premium of 15% and a low claims ratio of 3-4% for the travel insurance business, they will likely to offer a favorable invest option. Also their general insurance business in Malaysia will profit from the efforts to profitability develop and enhance the underwriting margins to 53-54% in fiscal year 2013-2015.
3) Describe the dividend policy of Tune Ins Holdings Berhad and how the policy may affect the company’s share value.
TIBH has a dividend policy of paying out 40% or more of its net earnings. This is the source for the anticipated 40% payout, which results in expected net dividend per share (DPS) of 4 sen in 2013, 4.3 sen in 2014 and 4.9 sen in 2015. Though the dividend yield of 2-3% in 2013-2015 is lesser as compared to the market’s yield of 3.6% for the year 2013 and 3.9% in 2014. Supposing a 40% payout of profit as a dividend, results dividend yield is just 2%-3% with is unattractive to many investors. Its dividend as compared to its competitor’s (LPI Capital’s and Syarikat Takaful’s >5%) in the market is much less (RHB Research).
According to the analysis by the CMIB, the current year 2014 price-earning ratio (P/E) for the aim price of RM1.63 is 15.3x, above the 13.5x for the KLCI target of 1,640. Still, they claimed that this P/E decent enough depending upon TIHB’s net profit growth of 17.8% (vs. 10% for the market), and ROE of 20.9% (vs. 15.5%). This is a fair share value and will lead to a increase in the market valuation of the shares. The investors will know that the company is intending to invest back in for the expansion and growth purposes. It has extremely bright future potentials for generating staggering amount of profits depending upon its collaboration with AirAsia and growth prospective of travel business insurance.
"Flying with a Well-tuned Insurer." (n.d.): n. pag. CMIB. 2013. Web.
"Tune Ins Holdings Berhad | Investor Relations." Tune Insurance. N.p., 2013. Web. 01 June 2014
"Tune Ins Holdings." RHB Research (n.d.): n. pag. 2013. Web.
"Tune Ins Set to Attract Investors for Its IPO - Business News | The Star Online." The Star Online. N.p., n.d. Web. 01 June 2014.