• LPI reported a 4Q20 net profit of RM112.7m (+10% yoy; +10.5% qoq) while 2020 at RM336.7m (+4.5% yoy) was within our and consensus estimates
   
• Despite the repercussions of the COVID-19 pandemic, LPI continued to register a 12.2% yoy growth in underwriting profits, thanks to lower net claims incurred in the miscellaneous segment
   
• Maintain BUY with our PT unchanged at RM15.90, based on a P/BV target multiple of 3.0x on 2021E BVPS. A final DPS of 44 sen was proposed with full year DPS coming in at 72 sen (2019: 70 sen)

4Q20 net profit continued to improve qoq, 2020 net profit grew by 4.5% yoy

LPI Capital saw a 4Q20 net profit of RM95.2m (+10% yoy and +10.5% qoq), as the quarter was driven by lower net claims incurred and management expenses. This resulted in improved 4Q20 underwriting profit (+16.3% yoy; +30.6% qoq) despite seeing marginal growth yoy in net earned premium (NEP). Despite another round of MCO, underwriting profit (on a qoq basis) was not affected due to lower net claims (driven by the motor and miscellaneous segment), though we saw weaker gross written premium growth in 4Q20. Overall, 2020 GWP and NEP were flat yoy as a result of a weaker 2Q, which saw a strict MCO. Meanwhile, 2020 underwriting profit expanded by 12.2% yoy, as net earned premium continued to hold up yoy (given less premium ceded out), while net claims incurred declined (-5.8% yoy), as reflected by a full year net claims ratio of 41.2% vs. 43.9% in 2019.

2021 Earnings May Hold Up, as Most Business Sectors Are in Operations

As most business sectors in the economy are in operations (except for the non-essential services), we expect the impact of the on-going MCO (extended to 18 Feb) to have a less detrimental impact on LPI’s premium growth compared to the 1st MCO in 2019 (which lasted 47 days). We maintain our 2021E/22E GWP forecasts of 4.3% and 3% as well as net claims ratios of 45-47% and combined ratios of 69% for 2021E-2022E. We introduce 2023E forecasts as well, with GWP growth of 3% yoy and combined ratio of 70%.

Maintain BUY, Price Target Unchanged at RM15.90

We maintain our BUY rating on LPI, with our TP of RM15.90 (based on a target P/BV multiple of 3.0x on 2021E BVPS of RM5.31) unchanged. At current price, LPI’s dividend yields remain attractive at 5.3-5.5%. LPI’s solid industry track record and robust capital adequacy ratio (CAR) in excess of 400% reflects its strong underwriting capacity to take on additional risks and withstand potential shocks. Downside risks: sharp deterioration in the economy and delays in the COVID-19 vaccination program.

Source: Affin Hwang Research - 4 Feb 2021