Investment Highlights

• We maintain our HOLD recommendation on LPI Capital (LPI) with unchanged fair value of RM13.60/share. Our fair value is based on FY21 P/BV of 2.6x supported by an ROE of 17.1%. We make no changes to our earnings estimates.
• LPI recorded a higher net profit of RM86mil (+11.3% QoQ) in 3Q20 attributed to lower net claims incurred.
• 9M20 core earnings of RM241mil grew modestly by 2.4% YoY contributed by lower claims and higher fair value gains on investments by RM7.5mil. This was despite recording a drop in dividends and interest received on securities held by the group. Cumulative net profit was within expectations, making up 75.3% of our and 79.0% of consensus estimate respectively.
• 3Q20 gross written premium (GWP) grew 11.7% QoQ to RM381mil attributed to higher growth of motor and insurance categorized under the miscellaneous segment. We believe that this was due to the resumption of business activities after the lockdown imposed during the movement control order (MCO). Also QoQ, the improvement in motor premiums was supported by the pickup in sales of new motor vehicles due to the announced sales tax exemption. For 9M20, GWP was flat at RM1.2bil (-0.002% YoY).
• LPI’s net earned premium (NEP) for 9M20 was subdued at RM743 mil (-0.4% YoY). This was due to the decline in NEP for the marine, aviation and transit as well as the miscellaneous segment. The group’s retention ratio was sustained at 66.0% in 9M20.
• Underwriting margin for 9M20 rose to 30.1% vs. 27.5% in 9M19 supported by lower claims, management and commission expense ratios.
• Claims ratio improved slightly to 43.7% in 9M20 compared with 45.2% in 9M19 with the improvement of motor, marine, aviation & transit and the miscellaneous segments ratios. We understand that in 3Q20, claims overprovided for the marine, aviation & transit segment were written back. Meanwhile, claims ratio for fire insurance has held up at 13.2%.

Source: AmInvest Research - 16 Oct 2020