Investment Highlights

• We maintain HOLD on LPI Capital (LPI) with a lower fair value of RM14.20/share (previously RM14.30/share). Our revised fair value is based on FY22 P/BV of 2.4x, supported by an ROE of 15.7%. Our core earnings for FY22/23 have been tweaked lower by 3.8%/5.0% after raising our assumptions for claims ratio.

• LPI posted a lower net profit after tax of RM73mil (-30.7% QoQ) in 4Q21. The decline in earnings were attributed to lower investment income and higher fair value losses on fixed income investments which were impacted by the rise in MGS yields. Also, claims ratios were higher in all key classes of insurance after the reopening of economy as well as from floods. As at end-Dec 2021, the group has received more than 1,300 flood claims.

• Potential flood claims have increased the group’s insurance contract liabilities in 12M21. On a comforting note, the group’s reinsurance assets have risen in 12M21. With reinsurance coverage, LPI’s net exposure to flood claims will be limited to RM3mil on a worst case scenario. We gather that RM3mil has already been set aside as provisions for potential claims.

• Cumulatively for 12M21, the group recorded a marginally higher net profit of RM345mil (+2.4% YoY). This was supported by lower claims for motor and miscellaneous segments, partially offset by higher fair value losses on investments.

• 12M21 core earnings were within expectations, making up 98.9% of our and 98.3% of consensus estimate.

• For 12M21, gross written premium (GWP) was flattish at RM1.56bil (+0.7% YoY). Restrictions on movements and operations of business sectors, particularly the full lockdown (MOC 3.0) implemented on 1 June 2021, have impacted demand for insurance.

• Growth in NEP was subdued at -0.4% YoY in 12M21. LPI’s retention ratio slid to 62.8% in 12M21 vs. 66.3% in 12M20.

• Underwriting margin for 12M21 rose to 37.0% attributed largely to lower motor claims.

Source: AmInvest Research - 8 Feb 2022