Investment Highlights

• We maintain HOLD on LPI Capital (LPI) with a revised fair value of RM12.70/share from RM12.60/share. Our revised fair value is based on FY23F P/BV of 2.2x supported by a slightly higher ROE of 14.3% (previously: RM14%). No changes to our neutral 3-star ESG rating.

• 1QFY23 core earnings were within our expectation, making up 23.6% of our forecast and 26% of consensus estimate.

• However, we tweak our FY23F/24F/25F earnings by 1.9%/1.9%/1.8% to incorporate the changes to P&L after the implementation of MFRS 17.

• LPI adopted MFRS 17 from 1 Jan 2023 which replaced MFRS 4. The adoption of the new standard saw the opening balance of the group’s retained earnings on 1 Jan 2022 increased by RM49.7mil.

• Arising from the impact of discounting on cashflows, LPI’s reinsurance contract assets and insurance contractual liabilities were lowered with the adoption of the new standard. However, due to adjustments to the overprovisioning of insurance contractual liabilities of the previous financial years, the net impact from the implementation of MFRS 17 was a positive RM48.7mil to the group’s opening shareholders’ funds on Jan 2022.

• Under FRS 17, LPI recorded an improved underlying net profit of RM74mil (+13.8% YoY) in 1QFY23 compared to the restated earnings for 1QFY22. The improvement was driven by higher investment income. 1QFY23 saw the group report net fair value gains of RM10.3mil vs. losses of RM4mil in 1QFY22, attributed to a recovery in the bond market.

• Insurance revenue grew by 11.2% YoY to RM431mil in 1QFY23, supported by higher revenue from the fire, motor, marine, aviation and transit classes of business.

• Insurance service results decreased by 8.4% YoY to RM61mil attributed to higher net expense from reinsurance contacts.

Source: AmInvest Research - 25 Apr 2023