9MFY21 Core Net Profit (CNP) of RM271.6m (+12%YoY) is within our/consensus expectations, both at 79%. We think earnings could decline sequentially on: (i) seasonal dip in gross written premiums, (ii) higher claims ratio, (iii) higher effective tax rate, and (iv) annual staff bonus. No changes to earnings estimate. Maintain MARKET PERFORM with an unchanged TP of RM14.20 @ FY22E PBV of 2.6x (mean). Near-term upside is limited as the stock lacks catalyst, but dividend yield of ~5% provides a safety net.

Within expectations. 3QFY21 registered CNP of RM105.4m (+26% QoQ; +22% YoY), bringing 9MFY21 CNP to RM271.6m (+12% YoY), which is within our/consensus estimates, both at 79%. Absence of dividend is expected as LPI usually declares dividends concurrently with its 2Q and 4Q quarterly results announcements. We expect a final DPS of 45.0 sen to be declared for 4QFY21.

Results’ highlight. YoY, 9MFY21 CNP rose (+12%) as net earned premium (NEP) grew (+2%), while claims incurred ratio (CIR) fell (-7.6 ppt). This was also boosted by lower effective tax rate (-2.2ppt). NEP growth was driven by higher: (i) Fire (+1.1%), and (ii) Motor (+3.5%). QoQ, 3QFY21 CNP increased (+26%) on the back of: (i) higher NEP (+3.5%) mainly from higher Fire (+5.5%), and Miscellaneous (+9.3%), (ii) lower combined ratio (-5.1ppt), as well as (iii) lower effective tax rate (-3.9ppt).

Outlook. Looking ahead into 4QFY21, we expect a sequential earnings decline. This is premised on a seasonal dip in gross written premiums alongside our expectation of higher claims incurred ratio as the economy reopens. Normalisation of effective tax rate (~24%), and annual staff bonus further add weight to our sequential earnings decline expectation.

No changes to earnings estimate.

Maintain MARKET PERFORM with an unchanged TP of RM14.20 based on FY22E PBV of 2.6x (implying mean). We think near-term upside is limited as the stock lacks catalyst. However, dividend yield of ~5% provides a safety net. Risks to our call include: (i) higher premium underwritten, (ii) lower-than- expected claims, (iii) higher/lower-than-expected management expense ratio, and (iv) further rounds of MCO.

Source: Kenanga Research - 15 Oct 2021