Investment Highlights

• We maintain HOLD on LPI Capital (LPI) with an unchanged fair value of RM12.90/share, based on a P/BV of 2.2x supported by FY24F ROE of 14.5%. No changes to our neutral 3-star ESG rating.

• We make no changes to our earnings forecast as 9M23 core earnings were within expectations, making up 76.5% our and 80.7% of consensus estimates.

• LPI recorded a higher 3Q23 net profit of RM97mil (+52.3% QoQ), contributed by an increase in insurance service results and investment income. The stronger insurance service results were driven by higher insurance revenue and lower net expenses from reinsurance contracts.

• In 9M23, the group reported higher earnings of RM235mil (+19% YoY). The improvement was driven by higher investment income and fair value gains on investments of RM15mil in 9M23 vs. losses of RM11mil in 9M22. This more than offset a weaker insurance service results in 9M23 which was impacted by a significant increase in net expenses from reinsurance contracts.

• Operating revenue grew by 13.5% YoY to RM1.4bil in 9M23, supported by higher insurance revenue from fire, motor, marine, aviation and transit classes (MAT) of business.

• 9M23 insurance service results fell by 5.7% YoY to RM213mil, attributed to higher net expenses from reinsurance contracts. 9M23 saw a higher net claims ratio of 46.2% vs. 44.8% in 9M22 as a result of an increase in claims from the fire and medical classes of business.

• By segments, the insurance service results of fire segment fell by 25.5% YoY to RM149mil in 9M23 driven by higher net expenses from reinsurance contracts. Meanwhile, the insurance service results for the motor segment improved to RM17mil in 9M23 vs. –RM26mil in 9M22. Elsewhere, MAT recorded an improvement in insurance service results of RM7mil in 9M23 (9M22: RM3mil) while that for miscellaneous classes of business slipped by 18% YoY to RM39mil.

Source: AmInvest Research - 25 Oct 2023