INVESTMENT HIGHLIGHTS

• Results came in within expectations

• Growth driven by strong demand for general protection

• We maintain earnings forecast for FY18

• NEUTRAL with unchanged TP of RM18.91

Within expectation. LPI’s 3QFY17 recorded decent earnings at RM92.2m, chalking up year-on-year growth of +18.5%. Notably, the results came in within expectations recording 70.9% and 74.1% of ours and consensus’ estimates for 9MFY17.

Improvement in earnings underpinned by a strong demand in the general insurance market. The group’s strong agency network remains the key contributor to the encouraging growth in 3QFY17 revenue, +11.9%yoy. The demand for the Group’s general protection products continues to be solid despite the pressure from BNM’s 2nd phase liberalization which commenced in July 2017.

Combined ratio improved. The group’s combined ratio recorded a net decrease of -1.1ppts yoy, from 65.0% in 3QFY16 stemming from its prudent underwriting policy and costs control measures. This has led to a +1.1ppts yoy uptick in the group’s 3QFY17 underwriting margin to 36.1%. However, despite the improvement, its overall claims ratio experienced a slight increase of +1.4ppts yoy. The increase, we opine is primarily driven by an upsurge in net claims incurred from miscellaneous segment, where it grew by +93.6%yoy and +9.8%qoq.

Underwriting surplus increased. The demand for general insurance appear resilient as the group registered a rise in underwriting surplus for all segments with the highest recorded in MAT,+58.4%yoy for 3QFY17. This includes miscellaneous segment, in spite of the surge in net claims incurred, which was mentioned earlier.

Maintain forecast. As the results came in within our expectations, we maintain our FY18 earnings forecast.

Recommendation. All in, we believe the group’s better performance reflects positively on the stock. The management highlighted its initiative towards digitalisation, a strategy to improve distribution channel and services. We opine that the plan is well-timed given the changing landscape of the insurance market following liberalisation. However, we opine that the management’s digitalisation plan is yet to be clear, with limited description on the project timeline. Hence, at this juncture, we remain our NEUTRAL stance on the stock. From a valuation standpoint, we do not see any fresh catalyst that will justify a higher valuation. Consequently, we are maintaining our TP at RM18.91 pegging its FY18 recurring EPS to PER of 19 times (2 standard deviation below 5 year historical average). We view that the group’s positive performance will continue in the next quarter, stemming from better economic outlook for the rest of the year according to our in-house economics forecast.

Source: MIDF Research - 10 Oct 2017