Investment Highlights

• We maintain our HOLD recommendation on LPI Capital (LPI) with revised fair value of RM13.50/share from RM13.60/share. Our fair value is based on FY21 P/BV of 2.5x, supported by an ROE of 16.2%. We continue to see the stock as fairly valued. We tweak our FY21/22 net profit marginally by 0.4%/-1.1% after fine-tuning our claims ratio assumptions.

• LPI recorded a higher net profit of RM95mil (+10.5% QoQ) in 4Q20. This was supported by the release of unearned premium reserves in the quarter which increased its gross earned premium (GEP) as well as due to lower net claims. Claims ratio was lower for most classes of insurance except for trade credit and bond insurances.

• 12M20 core earnings of RM337mil grew by 4.5% YoY, contributed largely by lower claims due to the implementation of the movement control order (MCO). Cumulative net profit was within expectations, making up 105.3% of our and 104.1% of consensus estimate respectively.

• For 12M20, GWP climbed 1.7% YoY to RM1.55bil. LPI’s net earned premium (NEP) for 12M20 was flattish at RM1.02bil (+0.4% YoY). The group’s retention ratio was marginally lower at 66.3% in 12M20.

• Underwriting margin for 12M20 improved to 32.9% vs. 29.6% in 12M19, supported by lower claims and commission expenses.

• Claims ratio declined to 41.2% in 12M20 compared with 43.9% in 12M19 with the improvement of motor, marine, aviation & transit and the miscellaneous segments’ ratios. Meanwhile, claims ratio for fire insurance was steady at 12.4%.

• Management expense ratio was sustained at 19.7% while the commission ratio improved to 6.1% for 12M20. The latter was due to higher commission income with the increase in premiums ceded out to reinsurers. The group registered an improved combined ratio for 12M20 of 67.1% (12M19: 70.4%).

• Aging of insurance receivables remained healthy with 89.7% of the total receivables falling within 90 days.

Source: AmInvest Research - 4 Feb 2021