INVESTMENT HIGHLIGHTS

• LPI Capital’s (LPI) 1QFY17 core net profit of RM70.2m (+7%yoy) was within ours and consensus’ expectations

• Underwriting profit improved further

• Decent quarterly performance was attributable to higher net earned premiums on fire segments, and improvement in claims ratio

• We retain our earnings forecast as the results came in line with our FY17 estimate

• We downgrade our recommendation to NEUTRAL with an unchanged TP of RM18.78 per share, as we do not foresee any further upside due to uncertainty from 2nd phase motor de-tariffication

1QFY17 earnings met our expectation. LPI’s 1QFY17 core net profit of RM70.2m (+7%yoy) came within ours and consensus’ expectations at 21.9% and 22.7% of respective full year estimates. The variance was due to improvements in operating revenue at RM347.6m from RM320.6m in 1QFY16. Also, the growth is attributable to better combined ratio registered at 63.8%, which translates to a higher underwriting margin (+4ppt yoy).

Underwriting profit improved further. Underwriting profit grew by +17%yoy to RM58.5mil from RM50mil, contributed by +15.2%yoy growth in earned premium income. It was also due to lower level of net claims incurred at 26.3%(-12ppt yoy).

Fire insurance segment continued to register strong growth. In 1QFY17, the strong performance was reflected by the strong growth in fire insurance segments’ net earned premiums which expanded +40%yoy to RM75.6m.

But motor segment net earned premium was flat. Motor segment’s net earned premium came in at RM61.8m, representing no yearly growth and decline of -15%qoq.

No change in forecast. As the results were within our expectation, we maintain our earnings forecast.

Recommendation. Despite the steady start to the year, we are downgrading our call to NEUTRAL on LPI. This is due to the fact that we do not expect any further upside to the share price given the uncertainty surrounding the impact of the implementation of 2nd phase motor de-tariffication. However, we maintain our target price (TP) of RM18.78 per share which is derived from sum-of-the-parts valuation.

Source: MIDF Research - 11 Apr 2017