Investment Highlights

• We maintain HOLD on LPI Capital (LPI) with unchanged fair value of RM14.30/share. Our fair value is based on FY22 P/BV of 2.4x, supported by an ROE of 15.9%. We are keeping our earnings estimates unchanged.

• LPI registered an improved net profit after tax of RM105mil (+25.6% QoQ). This was on the back of higher net earned premium (NEP), investment income, lower net claims and management expenses.

• Cumulatively for 9M21, the group recorded a higher net profit of RM272mil (+12.5% YoY) supported by an increase in NEP and lower claims incurred for motor and medical insurance.

• 9M21 core earnings were within expectations, making up 77.9% of our and 78.9% of consensus estimate.

• In 9M21, gross written premium (GWP) slipped by 0.8% YoY to RM1.19bil with restrictions on movements and operations of business sectors impacting demand for insurance. YTD FY21, the GWP for both fire and motor insurance was lower YoY.

• 3Q21 saw the release of unearned premium reserves with a slowdown in GWP. This has resulted in a higher NEP of 3.5% QoQ in 3Q21 and 1.7% YoY for 9M21. LPI’s retention ratio slid to 62.3% in 9M21 vs. 65.2% in 9M20.

• Underwriting margin for 9M21 improved to 37.1% vs. 30.1% in 9M20 mainly attributed to lower claims.

• Claims ratio fell to 36.1% in 9M21 vs. 43.7% in 9M20, supported by lower claims for motor and medical insurance. With the easing of mobility restrictions resulting in more traffic on the roads and more economic sectors allowed to operate after achieving a high vaccination rate, the low motor and medical claims are poised to normalize in the quarters ahead.

• 9M21 saw the group’s combined ratio improved to 62.9%. Commission and management expense ratios remained stable at 5.9% and 20.8% respectively for 9M21.

Source: AmInvest Research - 15 Oct 2021