LPI Capital Bhd
Outperform. Target price: RM15.00
April 30, 2024:
LPI’S Q1’24 net profit hit 30% of both our full-year forecast and consensus full-year estimate. We find positive deviations in significantly better net claims (mainly attributed by the fire class segment) from higher reversed claims reserves during the period.
YoY, Q1’24 insurance service revenue came in flattish, underpinned by weakness in its fire class insurance products (19%). On the flipside, its motor (+11%) and miscellaneous (+12%) products provided support, likely on the back on more policies demanded. That said, insurance service results surged by 44% as net incurred claims were significantly lower at 40.1% (-11.7ppts) with claims provisions being reversed. We opine this could be tied to previous frontloaded reserves owing to unprecedented flooding incidences in prior years. This overall translated to greater net profit of RM101.3 million (+37%) following higher effective taxes (20.5%, +1.3ppts).
QoQ, Q1’24 revenue declined by 8% following the same pressures from the fire class insurance segment but with insurance results also coming in better (+8%) on the back of a higher policy retention (77.6%, +19.7ppts). On the flipside, investment income nearly doubled, thanks to dividend payments from the group’s equity investments. All in, Q1’24 net profit came in 29% stronger.
Maintain OUTPERFORM with a higher TP of RM15 (from RM14.70). We raise our TP as we roll over our valuation base year to FY25F on an unchanged 2.6x PBV. This represents a 25% premium against the industry average of 2.1x which we believe is fair given: (i) better net margins of 17% (vs peer’s 11%), and (ii) higher dividend returns of 6-7% (vs peer’s 4-5%).