Some tough spots ahead for LPI Capital

KUALA LUMPUR: Kenanga Research said LPI Capital Bhd could face headwinds as the insurance claims ratio is expected to rise to pre-pandemic levels amid increasing activity during the country's endemic phase.

In a note, the research firm said motor claims are expected to increase with the resumption of economic activity, prompting a reduction in its earnings projections for LPI for FY22 and FY23.

In addition, Kenanga anticipates continued competitiveness in the fire insurance space, which will further add to pressure in LPI Capital Bhd's key segment.

"The fire insurance space will likely to continue its competitive streak from 2017’s detariffication with an upcoming review in 2HFY22 likely to steer towards more consumer-centric pricing models.

"That said, any changes from further liberalisation would only affect new policies," said the research firm in a report.

Kenanga slashed its FY22 and FY23 projections by 19% and 11% to reflect the potential downside.

It maintained "market perform" on the stock but reduced its target price to RM14.10 from RM14.20 previously.

In its recent earnings 1QFY22 announcement, net earnings arrived at RM61.5mil, which made up 19% and 18% of Kenanga's and consensus full-year estimates respectively.

"The negative deviation came from top-line weakness as we had anticipated net earned premiums (NEP) to grow rather than decline, no thanks to lower-than-expected retention ratios," said Kenanga.