KUALA LUMPUR: AmInvestment Research is maintaining its Hold call for insurer LPI Capital with an unchanged fair value of RM17.80 a share.
It said on Tuesday this was based on 2.5 time price-to-book value (P/BV) -- five-year historical average P/BV) on FY18 BV.
“Valuation continues to be on the high side with the stock trading at 2.6 times FY18 BV/share (average M&A P/BV for general insurance companies is 2.0 times),” it said.
To recap, LPI reported a core net profit of RM66mil in 2QFY17 (-6.6% on-quarter; +5.3% on-year).
This brought the group's cumulative core earnings (stripping out gains from realisation of equity investments) to RM136mil (+6.4% on-year) for 1HFY17, which met expectations (45.5% to AmInvestment Research’s estimate).
Nevertheless, LPI’s recurring earnings were slightly below street numbers, accounting for 44.3% of consensus forecast.
The group's unit, Lonpac Insurance, continued to record healthy underwriting profit of RM129mil (+9.6% on-year) for 1HFY17.
Growth in gross and net earned premium of 2.8% on-year and 9.4% on-year respectively was decent, outpacing the domestic general insurance industry.
Phase 2 of the liberalisation of fire and motor insurance tariffs started on July 1, 2017 where the pricing for comprehensive and third-party fire and theft motor insurance will be liberalised.
“With 63.5% of Lonpac’s gross written premium comprising fire and motor premiums, the group is likely to feel the impact of lower margins in 2HFY17. However, we expect the impact to be a manageable one.
“Despite the expected short-term pressure on the pricing for motor and fire insurance premiums, we expect the group to still achieve a healthy underwriting profit with its claims ratios kept low from conservative underwriting,” it said.
A first interim dividend of 27 sen has been declared (payout of 66.0% against core EPS).
Limited time offer:
Just RM5 per month.
