KUALA LUMPUR: Affin Hwang Capital Research is maintaining its Buy call on insurer LPI Capital Bhd
with a higher revised price target of RM21.70.
It said on Tuesday it continues to like LPI for its steady premium growth, disciplined underwriting and superior margins.
“We reiterate our BUY recommendation with a revised price target of RM21.70, based on a 3.3 times 2018E price-to-book value (P/BV) target from RM21.40 at 3.27 times 2018E P/BV,” it said.
Affin Hwang Research pointed out LPI had a change in accounting estimates on its unearned premium reserves which resulted in a financial impact of +RM23.3mil on 9M17 pre-tax profit.
“Otherwise, we reckon that 9M17 net profit was below our original 2017 forecast of RM303mil by circa 8.7%. We have revised upwards our 2017-19E earnings by 1.4%-1.7% to account for the revisions,” it said.
It said LPI’s 9M17 core profit before tax (PBT) rose 11% on-year; accounting estimates of UPR revised LPI Capital’s 9M17 core net profit and core PBT increased by 10.5% and 11% on-year driven by a 12% increase in net earned premium.
Nonetheless, based on headline numbers, LPI’s 9M17 pre-tax profit (PBT) and net profit were both down by 29% on-year and 35% on-year, in the absence of a RM150.4m realised investment gain in 9M16.
In 3Q17, LPI revised its accounting estimates on its unearned premium reserves calculation prospectively for certain classes of business (to reflect a more accurate position of its unearned premium reserves).
Affin Hwang Research said the fire segment remains the key driver, contributing 44% to net earned premium (NEP), while registering a growth of 15.1% on-year respectively.
Its motor and marine, aviation & transit (MAT) segments meanwhile remained lacklustre due to declining vehicle sales at its main motor sourcing partner and the overall weaker oil and gas activities.
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