Investment Highlights

• We maintain HOLD on LPI Capital (LPI) with a higher fair value of RM14.30/share (previously RM13.50/share). We roll over our valuation to FY22. Our fair value is based on FY22 P/BV of 2.4x, supported by an ROE of 15.9%. No changes to our earnings estimates. We have assigned a 3-star ESG rating on the stock (Exhibit 2).

• LPI recorded a higher net profit after tax of RM82mil (+5.6% YoY) in 1Q21. This was contributed by a lower effective tax rate of 16.0% in 1Q21 (1Q20: 20.0%) from tax exemptions on dividends received through equity investments. PBT was flat at RM98mil (+0.2% YoY) in 1Q21. Higher net earned premium (NEP) and dividend income, and lower net claims were partially offset by fair value (FV) losses of RM34.6mil in fixed income unit trust investments in 1Q21 vs. FV gains of RM6.2mil in 1Q20.

• 1Q21 core earnings of RM82mil were within expectations, making up 23.5% of our and 23.6% of consensus estimate.

• For 1Q21, GWP slipped 3.1% YoY to RM471mil. The decline was attributed to lower fire premiums. We believe this was due to the decrease in renewals of fire policies. Also, restrictions of the MCO 2.0 in early 1Q21 impacted selling activities. 1Q21 saw lower gross premiums from direct/corporate clients and broking distribution channels. LPI’s retention ratio slid marginally to 63.5% in 1Q21.

• Underwriting margin for 1Q21 improved to 36.4% vs. 28.6% in 1Q20 supported by lower claims and higher NEP.

• Claims ratio fell to 39.0% in 1Q21 vs. 46.3% in 1Q20, supported by lower claims for the motor and miscellaneous segment. Meanwhile, claims ratio for fire insurance was slightly higher at 15.7%.

• Management expense ratio decreased to 19.8%. Meanwhile, commission ratio rose to 4.8% in 1Q21 contributed by lower commission income. The group registered an improved combined ratio for 1Q21 of 63.6% (1Q20: 71.4%).

• Aging of insurance receivables remained healthy with 98.4% of the total receivables falling within 90 days.

Source: AmInvest Research - 16 Apr 2021