LPI’s upcoming 9MFY13  results  in  mid-Oct  are  unlikely  to  surprise. Following  our  meeting  with  management,  we  lower  our  premiums growth  assumptions  to  reflect  its  more  modest  expectations.  While  its new  strategies  may  take  time  to  come  to  fruition,  we  expect  some  tax relief  to  mitigate  the  softer  topline  growth.  Maintain  NEUTRAL,  with  a higher MYR16.50 FV, as we roll forward valuations to a 19.6x FY14F P/E.  

- New  strategies  in  niche  segments.  Recently,  together  with  a  few investors, we met up with LPI CEO Mr Tan Kok Guan, finance manager Harry Lee, as well as Mr Looi Kong Meng, CEO of LPI subsidiary Lonpac Insurance. Among the new developments discussed were: i) the insurer wants  to  capture  more  business  insuring  trade  credit  finance,  an untapped insurance segment in Malaysia, ii) management believes it will be a while before the industry requires appointed actuarial officers, given the  lack  of  talent,  iii)  it  plans  to  capture  more  market  share  and  raise contributions from its global partnership distributions, and iv) it expects to recognise  savings  from  a  tax  relief  for  Malaysia  Motor  Insurance  Pool (MMIP) losses. We estimate the MMIP tax relief at about MYR2m.

- Moderate premiums growth expected. Despite the new strategies, LPI expects  weaker  CY13  premiums  growth,  especially  given  softer  private car  sales  in  1HCY13.  Its  1HFY13  premiums  growth  of  4.0%  was  lower than 1HFY12’s 18.2%, but in line with industry growth of 5.0-6.0% YTD. The industry expects FY13 growth to be slightly above 6.0% vs 8.9% in FY12.  Nevertheless,  management  does  not  expect  significant  impact from  the  upcoming  Budget  2014.  The company’s  exposure  to  MRT projects are deemed resilient. Also, in the event of a worsening outlook for  import  businesses,  the  worst-case  impact  would  be  a  flat  growth  in the marine and cargo (MAT) insurance. As at 1HFY13, MAT accounted for  11.0%  of  gross  premiums,  and  the  group  projects  this  segment  to expand to 15.0%.  

- Trimming  forecasts,  rolling  over  to  FY14.  We  revise  our  FY13F/14F EPS  forecasts  downwards  by  1.7%/4.4%  to  reflect  softer  premiums growth  assumptions,  albeit  cushioned  by  the  MMIP  tax  relief.  Rolling over  our  valuation  to  FY14  EPS,  with  an  unchanged  19.6x  three-year P/E  band,  we  arrive  at  a  new  FV  of  MYR16.50  (from  MYR15.75). Dividend yields remain attractive at >5.0%. Maintain NEUTRAL.

Source: RHB