FY19 NP of RM322.4m (+3%) and total dividends of 70.0 sen are within expectations. Call upgraded to OP (from MP) as we believe investors should capitalise on weak share prices for its relatively stable business structure (Public Bank backing) and solid yield of c.5% to boot. Our TP is slightly lowered to RM15.90 (from RM16.00) post result model updates to book value.

FY19 met expectations. FY19 net profit of RM322.4m made up 101% and 100% of our and consensus’ respective full-year expectations. A final dividend of 43.0 sen was declared, amounting to a full-year payment of 70.0 sen (87% payout) which is close to our anticipated 72.0 sen or 95% payout.

YoY, FY19 operating revenue of RM1.60b (+6%) grew on the back of higher gross earned premiums (GEP) across all segments, mainly motor classes. Net earned premium was lifted 9% from a higher retention ratio of 67.6% (+1.8ppt), but only translated to an operating profit of RM414.4m (+3%) as the year’s combined ratio (70.6%, +2.7ppt) was hit by larger claims ratio incurred (43.9%, +3.0ppt). This was due to more incidences under the Miscellaneous Insurance segment. With that, FY19’s net profit registered at RM322.4m (+3%)

QoQ, 4QFY19 operating revenue declined by 6% from lower fire and miscellaneous GEPs in addition to poorer investment income. Despite this, operating profit rose by 4%, thanks to a more favourable cost environment supporting retention ratio (70.0%, +3.8ppt) and combined ratio (65.2%, -6.2ppt). However, having incurred higher effective taxes (24.9%, +3.8ppt), 4QFY19 net earnings registered at RM86.6m (-1%).

A less volatile option. The group remains predominantly exposed to fire insurance products, accounting for c.40% of GEP and c.65% of underwriting surplus before management expenses. At the moment, the segment is thriving, thanks to its backer (Public Bank)’s growing mortgage business. This segment could also continue to be on safe grounds given Bank Negara’s earlier stance to defer its detariffication plans for further studies on the matter. Though the other segments (motor, marine, aviation & transit, and miscellaneous) are more susceptible to volatile market conditions, we see LPI as having a more sustainable business model given its tightly held and dependent holding interests. Earlier market whispers of other competitors potentially losing out of banca partnerships may be a significantly less prevalent risk.

Post results, our FY20E earnings are relatively unchanged. Meanwhile, we introduce our FY21E numbers.

Upgrade to OUTPERFORM with a slightly lower TP of RM15.90 (from RM16.00), from minor book value adjustments post results model update. We maintain our 3.0x FY20E PBV valuation (close to the stock’s 3-year forward average), a level which we believe trading appetite is likely to support as the stock has firm backing from Public Bank. The stability it offers and attractive yields of c.5%, appeals to investors seeking to ride through the current turbulent market environment.

Risks to our call include: (i) lower premium underwritten, (ii) higherthan-expected claims, and (iii) higher-than-expected management expense ratio.

Source: Kenanga Research - 4 Feb 2020