• LPI reported a 1Q21 net profit of RM82.3m (+5.6% yoy; -13.6% qoq), coming in within our and consensus estimates
• Despite a challenging start to the year, coinciding with MCO 2.0 in January 2021, LPI reported a 34.7% yoy growth in underwriting profits, attributable to lower net claims incurred in the motor and miscellaneous segment
• No changes in our 2021-23 earnings forecasts. Maintain BUY with our PT unchanged at RM15.90, based on a P/BV target multiple of 3.0x on 2021E BVPS. No dividends proposed in 1Q21

1Q21 Net Profit Rose 5.6% Yoy, Though Declined 13.6% Qoq

LPI Capital saw a 1Q21 net profit rose to RM82.3m (+5.6% yoy) on the back of improved underwriting profits (+34.7% yoy). Overall, the quarter was driven by lower net claims incurred (-10.2% yoy at the motor and miscellaneous classes) and lower management/ other expenses. Meanwhile at the top line, gross written premium (GWP) remains weak (at key segments fire and miscellaneous) and was down 3.1% yoy. Nonetheless, LPI reported positive growth at its net-earned premium (NEP) line, +6.5% yoy in 1Q21 due to lower premium ceded out and with the higher release of unearned premium reserves. At the pre-tax profit line, it was flat in 1Q21 vs. 1Q20 as the favourable investment income results (up 19% yoy) were offset by the recognition of a RM34.6m fair-value loss in its fixed-income investments. On a qoq basis, net profit was down 13.6% due to a lower net earned premium income in 1Q21 vis-à-vis 4Q20 (which saw lower premium ceded out and higher release of technical reserves).

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

As most business sectors in the economy are in operation (except for the non-essential services), we expect the impact of the on-going CMCO (extended to 28 April) to have a less detrimental impact on LPI’s premium growth compared to the first MCO in 2020 (which lasted 47 days). We maintain our 2021E/22E/23E GWP forecasts of 4.3%/3%/3%, net claims ratios of 47% and combined ratios of 68-70%.

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 the current price, LPI’s dividend yields remain attractive at 5.2-5.3%. 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: emergence of a fourth COVID-19 wave in Malaysia, restriction in business activities, and higher frauds/thefts.

Source: Affin Hwang Research - 16 Apr 2021