INVESTMENT HIGHLIGHTS

• Results came in within expectations

• Growth driven by strong demand for fire insurance

• We maintain earnings forecast for FY18

• NEUTRAL with unchanged TP of RM18.91

Within expectation. LPI’s 4QFY17 recorded decent earnings at RM83.1m, chalking up year-on-year growth of +1.9%. Notably, the results came in within expectations recording 96.8% and 101.2% of ours and consensus’ estimates for 12MFY17.

Positive earnings growth underpinned by a strong demand for fire and miscellaneous products. The group general insurance market operating revenue grew +6.7% for FY17. The demand for LPI’s general insurance products remains robust despite operating in a more competitive environment following motor detarriffication. However, the motor segment experienced a notable decline in net earned premium by -10.7%yoy. Going forward, we opine contribution from motor segment to stabilize stemming from the group’s strategy of rebalancing its underwriting risks to selective motor products which are yielding more lucrative returns. This will mitigate the possible contraction in the downtrend in overall underwriting margin.

Combined ratio was slightly up. The group’s combined ratio recorded a net increase of +1.5ppts yoy, from 58.7% in 4QFY16. This was attributable to marginal surge in the group’s overall claim expenses, which translated to a -1.5ppts yoy drop in the group’s 4QFY17 underwriting margin. The decline, we opine is primarily driven by an expansion in net claims incurred from motor segment, where it grew by +17.3%yoy.

Underwriting surplus grew in almost all segments including Fire, MAT and Miscellaneous with the highest recorded in MAT, +82.5%yoy for 4QFY17. This was followed by the fire segment, where its underwriting surplus grew by +22.4%. Despite the fire segment registering higher net claims incurred by +9.0%yoy, the increase was largely absorbed the upsurge in net earned premium of +20.5%.

Source: MIDF Research - 11 Jan 2018