Investment Highlights

• We maintain HOLD on LPI Capital (LPI) with a revised fair value of RM13.20/share (from RM12.90/share previously), based on a P/BV of 2.3x supported by a slightly higher FY24F ROE of 14.6% (previously: 14.5%). No changes to our neutral 3-star ESG rating.

• FY23 core earnings were within expectations, coming in 2% above our and 3% of consensus estimates.

• Hence, we fine-tuned FY24F/25F earnings by 2.3%/3.6% after adjusting our estimates for insurance revenue and investment income.

• LPI recorded a lower net profit of RM79mil (-19.3% QoQ) in 4Q23, contributed by a decrease in insurance service results due to higher net expense from reinsurance contracts. Also, contributing to the decline was lower investment income in the quarter.

• In FY23, the group reported higher earnings of RM314mil (+24.4% YoY). The improvement was driven by largely by higher investment income and fair value gains on investments of RM26mil in FY23 vs. losses of RM8mil in FY 22.

• Operating revenue increased by 16.5% YoY to RM1.9bil in FY23, underpinned by higher insurance revenue from the fire, motor, marine, aviation and transit classes (MAT) of business.

• FY23 insurance service results grew marginally by 2.7% YoY to RM294mil. Higher insurance revenue and lower service expenses were partially offset by a surge in reinsurance cost. FY23 saw a higher net claims ratio of 45% vs. 43.2% in FY22, contributed by increase in claims from the fire and medical classes of business.

• By segments, the insurance service results of fire segment fell by 20% YoY to RM207mil in FY23, driven by higher net expenses from reinsurance contracts. Meanwhile, the insurance service results for the motor segment improved to RM17mil in FY23 vs. –RM43mil in FY22. For MAT, the segment recorded an improvement in insurance service results by 28.7% YoY to RM8mil in FY23 while that for the miscellaneous classes of business slid 4% YoY.

Source: AmInvest Research - 27 Feb 2024