We maintain HOLD on LPI Capital (LPI) with a slightly higher fair value of RM12.90/share from RM12.70/share after rolling over our valuation to FY24F. Our revised fair value is based on FY24F P/BV of 2.2x supported by a ROE of 14.5%. No changes to our neutral 3-star ESG rating.
We make no changes to our earnings forecast as 6M23 core earnings were within expectations making up 45% of our full year forecast and 46.3% of consensus.
In 6M23, the group reported higher core earnings of RM138mil (+16.3% YoY). The improved earnings were driven by higher investment returns with fair value gains on investments of RM17mil in 6M23 vs. losses of RM11mil in 6M22. This offset a lower insurance service results in 6M23, contributed by higher expenses from reinsurance contracts.
Operating revenue grew by 12.8% YoY to RM926mil in 6M23, supported by higher insurance revenue from the fire, motor, marine, aviation and transit classes (MAT) of business.
Nevertheless, insurance service results fell by 11.5% YoY to RM124mil, attributed to higher net expenses from reinsurance contacts. 6M23 saw higher reinsurance cost for fire insurance which is likely attributed to recent flood claims.
By segments, the insurance service results of fire segment fell by 28% YoY to RM93mil in 6M23. This signified a lower earnings contribution from the fire insurance class of business. Meanwhile, insurance service results for the motor segment improved to RM2mil in 6M23 vs –RM26mil in 6M22. Elsewhere, the insurance results of MAT recorded an improvement while that for the miscellaneous classes of business slipped by 27.4% YoY.
LPI's recorded lower earnings of RM64mil (-13.4% QoQ) in 2Q233 mainly attributed to a decline investment return. 2Q23 saw lower investment income and fair value gains on securities.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....