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Financial Accounting

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Questions: 1. Discuss the term “Initial Public Offering”. (4 marks) The tem initial Public Offering refers to a company stock market launch sale of stock for general public to purchase. It is the transformation of a private company/organization to a public company/organization. IPO is a way for the company/organisation to conjure more capital for its their business expansions This helps the company/organization to easily raise expansion capital to fund additional projects with positive cash flow. Hence, it reduces debts the company/organization will have if they refer to banks for loans to seek capital for expansion thus reducing interest and increasing profit margin of the company/organization.

2. Describe the business nature of Tune Ins Holdings Berhad. (4 marks) Tune Ins Holdings Berhad have two core businesses which is an online business by selling insurance products to customers as part of their online booking process with the online partners, and a general insurance business in Malaysia. The online insurance business with the group of its reinsurance business, currently underwrites in 14 markets in 12 countries, the main markets are Malaysia, Indonesia, Thailand, Singapore and China. The general insurance business directly underwrites general insurance products only in Malaysia. TIMB has approximately 1,000 agents and 16 branches throughout Malaysia. Tune Insurance Malaysia Berhad (TIMB) also gone through 55.85% owned subsidiary.
Tune Money Life Re Ltd
Business Focus
TMLR go do life reinsurance business namely is the life insurance products with accident and health medical through direct marketing channel to AirAsia and Tune Hotel customers under the marketing name of AA Lifestyle Protection Plan and Tune Hotels Lifestyle Protection Plan respectively. Tune Money Gen Re Ltd
Business Focus
TMGR does non-life reinsurance business namely accident and health risk and it is from travel insurance policies underwritten for the customers of AirAsia, Tune Hotel and Expedia. TMGR reinsures Travel PA acquired through the online business channel. Besides that, with respect to policies reinsured with TMGR, the company obtains retrocessional coverage with other rated reinsurers and cedes to such insurers a portion of the risk the company assumed.

Tune Money (Labuan) Ltd (TIL)
Business Focus
TIL has the license to operate as an offshore captive insurer in Labuan. TIL was build up as a joint venture between TMSB and Multi-Purpose Capital Holdings Berhad. They also came with the primary purpose of reinsuring general insurance underwritten by Multi-Purpose Insurans Bhd, a wholly-owned subsidiary of Multi-Purpose Capital Holdings Berhad. It also came with the incorporation of TMGR as a direct subsidiary of TIH, businesses previously conducted through TIL is now channelled to TMGR. Partners
AirAsia X, AirAsia, Tune Hotels, Tune Talk, CATERHAM F1 TEAM, Queens Park Rangers football club (QPR), Think BIG.

3. What is the purpose of Tune Ins Holdings Berhad’s IPO? (3 marks)

The purpose of Tune Ins Holding Berhad IPO is to gain funds for future growth and expansions when it is required for the company in the future from the capital market.Additionally, the IPO from Tune Ins Holding Berhad is an chance for the investors and institutions to partake in the ongoing growth of the company.Furthermore, other than financially benefits the IPO brings advantages that boost the status of Tune Ins Holdings Berhad public profile. Hence, this helps increase market awareness towards Tune Ins Holdings Berhad products and services thus also expanding the customer base of the company. 4. Discuss the meaning of a “Prospectus” in relation to an Initial Public Offering. (4 marks)

There are two types of prospectuses for stocks and bonds which is preliminary and final. The securities issuer provide the preliminary prospectus which is the first offering document and includes most the details of the business and transaction in question. The results in the use of the nickname “red herring” for this document that causes some lettering on the front cover which is printed in red. The deal has been made effective when the final prospectus is printed, can be offered for sale, and supersedes the preliminary prospectus. 5. Discuss 4 broad areas of information which can be found in the prospectus of Tune Ins Holdings Berhad and discuss how these information assist potential investors to decide whether to apply for the shares. (16 marks)

There are four areas of information that are found in the prospectus of the Tune Ins Holdings Berhad that I find it essential and useful for investor to decide whether to invest in buying the securities.
Firstly, I find the business overview section of the prospectus useful in understanding of the IPO company. This section gives investors a clearer view on what the company does and how successful are they in business. This part consists of the background of the company, what they do to make profit, and other details in relating to their business. For Tune Ins Holdings Berhad, they are an insurance product manager that designs and sells insurance products to the customers of their online partners, AirAsia, Tune Hotels and AirAsia Expedia. Their insurance products are mainly on Travel Protection Plan. In this prospectus, it is said that Tune Ins Holdings Berhad had agreements with Airasia Berhad and most of its affiliates for at least five years. We can see from the prospectus, the main competitive strength is that Tune Ins Holding Berhad have an exclusive relationship with AirAsia and that they are given the opportunity to be AirAsia’s only insurance agent. As we all know the tourism is growing non-stop and the increasing importance of having insurance even just for travelling, the potential of the business is extremely high. This is a never ending business. If the business is doing well, the profit will also be a good deal. Investing Tune Ins Holding Berhad can also be considered as money spent wisely.
Secondly, the section financial information is also a key in deciding whether to buy the shares. This section gains the most trust from investors because we all know money or profit is their main concern. This section is for investors to analyse to identify the IPO company’s share worth and financial strengths. The purpose of this section is to let investor find out is it wise to invest money as in buy securities of the company. This section usually divides into two parts which is the historical and future financial information. From the historical financial information from the prospectus we can see that there is an increase of operating revenues and profit before taxation every year since financial year 2010 till financial year 2012. The profit before taxation in the financial year 2009 was RM17,233,000, RM26,422,000 in 2010 and RM32,483,000 in 2012. The increase in the profit before taxation indicates that the company are making profit instead of loss and this previous financial data is the only prove the performance on the company.
Thirdly, there is a section of information in the prospectus named risk factors. Although this part of the prospectus may turn out to be disappointing but it is better to know the warning for the present and future company problems that may occur than to not know anything till loss occurred. Investors should take a good look at this section to predict the future performance of the company based on the risks mentioned in the prospectus. The first risk that was stated in the prospectus is that Tune Ins Holding Berhad depend solely on AirAsia. As discussed previously, Tune Ins Holding Berhad’s main business activity is the online travel protection insurance and they are selling their products mainly to the customers of AirAsia as the only insurance agent of AirAsia. So if one day the AA Distribution Agreement expires, Tune Ins Holding Berhad wouldn’t know if AirAsia still has the interest in doing the partnership with Tune Ins. If the partnership really comes to an end, it will have a big impact on the operating revenue. Other risks that was stated was only standard risk that all other company might face.
Lastly is the information on promoters, substantial shareholders and directors. This section is to give investors an in-depth knowledge on who are the people managing and running the IPO company. Going through this section allows investors to identify the level of knowledge and their strength in managing the business. As we all know, the success of a business depends on the skills of managing the company. Good management skills and knowledgeable directors are essential for success business.

6. List 3 competitive strengths of the company that may attract investors to subscribe the company’s shares. (3 marks)

RAM Ratings have respective long and short-term corporate with Tune Ins Holdings Berhad (“Tune Ins” or “the Group”). The long-term rating has a stable outlook. The 2 core business in Tune Ins is an online travel insurance and traditional general insurance. The partnership with AirAsia has the largest low-cost carrier, provides a captive and diversified regional market with strong growth potential. Not only the convenience afforded by a seamless booking process, Tune Ins online model also provide low distribution costs, facilitating competitively priced premiums. The claims ratio has remained consistently low, partly assist by the availability of data to support appropriate policy design and pricing. These are the competitive strengths that it is into steady earnings and margins for the Group’s travel insurance business. 7. Describe the dividend policy of Tune Ins Holdings Berhad and how the policy may affect the company’s share value. (6 marks) The dividend policy of Tune Ins Holdings Berhad is that 40% of the profit for each financial year beginning on 1st January will be paid towards dividends while the other 60% would not interfere. However this is currently Tune Ins Holdings Berhad intentions presently and will not be legally binding statements as the future dividends could be changed based on the boards decisions. This could affect the Tune Ins Holding Berhad share value as the investors are not given a fixed percentage where the profit goes to dividends as the percentage only applies to presently and investors might be afraid that changes will be made in the future as Tune Ins Holdings Berhad has the authority to do so as they see fit. Investors would not be afraid unless Tune Ins Holdings Berhad reassure them by fixing the percentage for all times where the dividends get paid or a minimum amount of fixed percentage is given.

This is a collaborative assignment between ACCD 201 Financial Accounting and ENGD 201 Business Communication. As such, you are required to present your answers above in the form of a report. Please refer to ENGD 201’s assignment guidelines for the preparation of the report. Total 40 marks to be converted to 20%
E-Portfolio 5%
TOTAL 25%

Important Guidelines: Marks will be awarded based on the quality of your work. You are encouraged to explain your answers in detail, and provide clear examples where possible. Marks will not be awarded for any solutions provided without proper explanation or example. The group should consist of a maximum of 3 members. Any issues on cooperation amongst the members must be brought to the attention of the lecturer during the early stages of the assignment. Submission date is on 27th June 2013, 2pm. Timely submission is your responsibility and any reasons for late submission will not be accepted. Plagiarism, which is an attempt to present another person’s work without acknowledging the source, is a serious academic offence and any students found to be doing so will be severely penalized.…...

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