LPI Capital - A steady 3Q12 earnings

kiasutrader

Publish date: Wed, 10 Oct 2012, 09:46 AM

Period 3Q12/9M12

Actual vs. Expectations

The 9M12 PAT of RM119.5m was marginally below ours (62%) and the consensus expectations (58%). However, the 3Q12 PAT of RM47.6m, which rose +5.6% YoY and +17.8% QoQ, was encouraging.

Dividends No dividend was declared.

Key Result Highlights

On a YTD basis, the key positive was the solid gross premium growth. LPI registered a 17.1% YoY growth rate in its gross written premium to RM715.5m, driven by the fire and marine divisions. This was above the 7% industry growth rate and should rise to 18% YoY by year-end.

On a QoQ basis, the group's 3QFY12 PAT rose 17.8% to RM47.6m. The increase was mainly driven by higher investment incomes as the group received dividend from Punlic Bank during the quarter.

In 3Q12, the total portfolio claims ratio was stable at 45.9% as compared to 2Q12's 45% and was substantially lower than 1Q12's 60%. The ratio was within our full-year forecast of 48%. Meanwhile, the fire division's loss ratio improved to 14.9% (vs. 2Q12: 14.6%), the motor division to 75.1% (vs. 2Q12: 75.3%), the miscellaneous division to 45.0% (vs. 2Q12: 43.1%) and the marine, aviation & transit division to 19.4% (vs. 2Q12: 13.1%).

A relatively low expense ratio seen in 2Q12 was encouraging, which was within management's guidance and our forecast of 12%.

Outlook We believe LPI's higher-than-industry organic growth is sustainable. Its gross premium portfolio is likely to reach beyond RM1.0b and together with the lag between the higher premium growth and the profit, we believe its earnings have more room to grow in 2013.

Its business cash generation remains the strongest in the sector. This should continue to support a high payout. We estimate a dividend payout ratio of 90% for FY12-FY14 in our model. Based on our estimates, LPI could potentially pay out RM0.79-RM1.21 as dividends for FY12-FY14, translating into net dividend yields of 5%-8%.

Change to Forecasts

We have cut our FY12 PAT forecast by 12% to RM170.5m as we have assumed a higher claim ratio due to the high frequency of catastrophic losses experienced in 1Q12.

However, our FY13 net profit forecast is largely unchanged as management said there is a time lag of 12 months to recognize profit, hence, our FY13 PAT is achievable.

Rating MAINTAIN OUTPERFORM

Our OUTPERFORM rating is maintained as the current share price implies a 24% total upside to our target price.

Valuation Maintaining TP at RM16.10 based on 15.0x FY13 PER, 2.26x BV and a 7.0% net yield.

Risks There could be a risk of a lower dividend payout as the group may need to conserve capital in 2013-14 if it intends to achieve a higher premium growth than what we are expecting now.

Source: Kenanga

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