Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on April 30, 2018

LPI Capital Bhd
(April 27, RM16.34)
Maintain buy with a target price (TP) of RM18.33:
LPI Capital Bhd’s first quarter of financial year 2018 (1QFY18) appeared broadly in line with expectations, with net profit outperforming that of 1QFY17 by 3% year-on-year (y-o-y) but was down by 12.4% quarter-on-quarter (q-o-q) due to higher claims incurred. The operating environment in 1QFY18 remained challenging for LPI Capital due to price competition in the fire insurance and motor segments, which are LPI’s underwriting profit drivers.

 

That said, the overall gross earned premium (GEP) growth (supported mainly by fire insurance) remained healthy at 9.9% y-o-y, though it was flat q-o-q. We reiterate “buy”, with our TP unchanged at RM18.33 (adjusted for 1:5 bonus issue).  

LPI Capital saw its 1QFY18 net profit grow by a marginal 3% y-o-y to RM74 million, while profit before tax (PBT) was at RM93 million (+3.4% y-o-y). Results were broadly in line with our expectations. For the top line, 1QFY18 GEP continued growing at 9.9% y-o-y though it was flat q-o-q. Growth was mainly supported by fire (+14.3% y-o-y) and marine, aviation and transit (MAT) (+8.8% y-o-y), while the motor segment saw a relatively flat GEP y-o-y. As a result of a higher retention rate in 1QFY18 of 61.9% against 56.3% in 1QFY17, there were higher claims in the group, which dampened LPI Capital’s 1QFY18 underwriting profit (RM59.3 million: +1.5% y-o-y; -36.3% q-o-q). The 1QFY18 net claims ratio was higher at 47.1% versus 39.8% in 1QFY17 and 34.6% in 4QFY17.   

The fire segment remained the key driver, contributing 42.5% of 1QFY18’s net earned premium (NEP), while registering a growth rate of 21.6% y-o-y. Its motor (NEP +7.8% y-o-y) contributed 30.8%, while the MAT segment contributed a marginal 2.3% of total NEP.  

We reiterate our “buy” recommendation and TP of RM18.33. We continue to like LPI Capital for being the market leader in the general insurance segment with an 8.1% market share, while continuing to see steady premium growth amid a more competitive market, disciplined underwriting and superior margins. — Affin Hwang Capital Research, April 27

 

      Print
      Text Size
      Share