LPI’s 1HFY13 earnings of MYR88.7m were within our forecast but below consensus  estimates,  at  49.4%  and  42.9%  of  both  full-year  forecasts respectively.  This  was  attributed  to  improving  underwriting  margins  in all  segments  of  the  group’s  general  insurance  business,  as  well  as increasing  commission  income.  The  group  announced  an  interim  DPS of  18  sen.  In  the  absence  of  surprises,  we  maintain  our  NEUTRAL  call and MYR15.75 FV. 
 
- Underwriting  margins  improve.    In  1HFY13,  LPI's  general  insurance (GI)  subsidiary,  Lonpac  Insurance  (Lonpac),  reported  a  commendable 24.1%  growth  in  PBT  to  MYR98.2m,  as  well  as  a  28.5%  surge  in underwriting profit to MYR78.8m. This was attributed to: i) an increase in underwriting  margins  across  all  GI  segments,  with  overall  margins widening by 537bps to 26.8%, ii) improving net claims ratio across all GI segments,  with  the  overall  claims  ratio  declining  by  409bps  to  48.2%, and  iii)  a  low  net  commission  ratio  of  5.9%  vs  the  historical  7%-8%. Meanwhile,  the  early  release  of  the  group's  1HFY13  results  reinforces our stance that GI underwriting margins should remain stable until 2016.  

- Recurring  low  commission  ratio?  In  our  earlier  review  of  LPI's 1QFY13  results,  we  stated  that  the  unusually  low  commission  ratio  of 5.4%  was  unlikely  to  recur  as  the  Group  made  a  reinsurance  income gain from a non-recurring reinsurance agreement. In 2QFY13, it received commission  income  from  reinsurance  ceded  from  some  of  the  larger risks  it  underwrites.  In  view  of  this,  we  maintain  our  commission  ratio assumption of 7.5%, which is in line with LPI’s historical ratio.

- Announces 18 sen interim dividend. The Group announced an 18 sen interim dividend, which translates into a 1.2% yield based on the stock’s current price. We expect the group to declare another round of dividends towards end-FY13. The ex-date of the first interim dividend is 19 July.

- Maintain NEUTRAL. We maintain our NEUTRAL call and MYR15.75 FV on  LPI,  pegged  to  a  19.6x  three-year  P/E  band  on  the stock’s FY13F EPS. We see limited upside as the share price has already priced in the group’s superior underwriting margins at this juncture. 

Source: RHB