Investment Highlights

• We maintain HOLD on LPI Capital (LPI) with an unchange fair value of RM12.80/share, based on a P/BV of 2.2 supported by FY24F ROE of 14.1%. No changes to ou neutral 3-star ESG rating (Exhibit 2).

• We make no adjustments to our earnings estimates a 1Q24 core net profit was within expectations, making u 30% our and consensus projection.

• LPI’s recorded higher net profit of RM101mil (+37.2% YoY in 1Q24 largely attributed to an improvement in insuranc service result. Insurance service result was stronger YoY contributed by lower net expense from reinsuranc contracts. Also, investment income rose due to a increase in dividends received from the holdings of Publ Bank shares.

• Fair value gains on investments were lower at RM4.4mil 1Q24 vs. RM10.3mil in 1Q23.

• Operating revenue was subdued at RM470mil (-1.4% YoY in 1Q24 with higher investment income partially offset b decline in insurance revenue (-1.9% YoY). Insuranc revenue for fire segment fell by 18.6% YoY due to a mo conservative actuarial assumption in 1Q24.

• Gross written premium (GWP) in 1Q24 grew by 8.7% Yo to RM532mil in line with our expectation. This wa supported largely by growth in premiums of fire, moto and miscellaneous segments.

• 1Q24 insurance service results grew 44% YoY to RM88m on the back of lower net expense from reinsuranc contracts. The decline in net expenses from reinsuranc contracts was driven by lower reinsurance premiums pa and recoveries of incurred claims.

• 1Q24 saw a lower net claim incurred (NCI) ratio of 40.1 vs. 51.8% in 1Q23. This was contributed by the decline NCI ratio of fire and motor class of business.

• By segments, the insurance service results of fire segment rose by 66.8% YoY to RM64mil in 1Q24, driven by lower net expenses from reinsurance contracts. Meanwhile, the insurance service results for motor segment improved to -RM1mil in 1Q24 vs. –RM2mil in 1Q23. The marine, aviation & transit (MAT) segment recorded a lower insurance service results of -RM1mil in 1Q24 (1Q23: RM5mil) while that for the miscellaneous classes of business slid 30.1% YoY.
   
• The combined ratio in 1Q24 improved to 73.5% vs. 81.4% in 1Q23, contributed by a lower NCI ratio. The management/commission expense ratios were marginally higher at 21.2%/8.4% in 1Q24 compared to 20.1%/7.6% in 1Q23.
   
• The loss from onerous insurance contracts ratio stayed low at 0.6% in 1Q24 vs. -1.4% in 1Q23.
   
• Implementation of Phase 2B detariffication, slated to be on 1 July 2023, has been delayed. It is now expected to commence either in the 2nd half of 2024 or early 2025. Margin compression is expected to continue going forward due to the continued liberalisations of fire and motor segments in phases. Competition in pricing on fire insurance has yet to abate and challenges remain on the underwriting margin of LPI for this segment.
  
  Meanwhile, claims for fire and medical class of business are expected to stay elevated.
   
• The stock is currently trading at a fair P/BV of 2.0x with a decent dividend yield of 5.8% for FY24F.

Source: AmInvest Research - 30 Apr 2024