• Visit to LPI Capital for latest update

• Putting focus on the more lucrative segment of motor business

• Digitalisation programme is underway

• We maintain earnings forecast for FY18

• NEUTRAL with unadjusted TP of RM18.91

Visit to LPI Capital. We met with Mr. Tan, the CEO yesterday for an update on any new developments. This includes recent developments in the industry and its strategy moving forward following the liberalisation of motor insurance.

Management’s update on liberalisation. Management is neutral on the implementation of motor detarriffication. It was indicated that there will not be any intense pricing competition in the insurance industry, at least until the end of 2017. This was due to Bank Negara’s careful approach of enacting a free-pricing market, as to assure that industry stability is preserved. Additionally, management added that the company is fundamentally strong to absorb the impact of such exercise, if the market for motor is fully liberalised. Notably, the company’ internal CAR has been standing well above its target at 200%.

Putting focus on the more lucrative segment of motor business. In light of the liberalisation, management indicated that it plans to put emphasis on more lucrative segments of motor insurance which are comprehensive and private motor. According to management, both comprehensive and private motor businesses are offering more opportunities for the company to grow and solidify its presence in niche segments. We opine that the move as strategically progressive, given the high possibility of margin compression once the industry is fully liberalized.

Digitalisation programme is underway. We are comforted by management’s positive stance on the digitalization trend taking place in the industry. LPI’s management pointed out that the company is currently on the transformation journey of adopting digital technology as part of its initiatives to reduce operational cost and enhance distribution channel. We opine that this will provide great opportunity for the company to leverage its strong presence in the market, stimulating further growth for the company.

Recommendation and valuation. At this juncture, we maintain our forecast pending for further announcement on the company’s digitalization strategy, which should provide a clearer picture such as the overall project timeline and expected capital expenses to initiate the move. From valuation standpoint, we believe that there is no significant event that will create any notable change in our valuation. Pursuant to that, we remain our NEUTRAL stance on the stock with a TP of RM18.91.

Source: MIDF Research - 15 Aug 2017