However, the group’s insurance space may benefit from rising demand as the economy recovers, according to the research house.
PETALING JAYA: LPI Capital Bhd
may see headwinds with the further liberalisation of fire insurance possibly compressing top line and normalising claims ratio on bottom line, says Kenanga Research.
However, the group’s insurance space may benefit from rising demand as the economy recovers, according to the research house.
“The group is expected to be led by its key fire insurance segment, benefiting from the rise in mortgage applications.
“Detariffication reviews are likely to keep premiums competitive and compress earnings potential,” it added.
The research house said the normalisation of insurance claims, mainly the motor segment, should persist as lower incidence rates owing to movement restrictions, are unlikely to repeat.
On a positive note, the group will be able to mobilise more aggressive agency strategies to regain lost ground.
However, it may fall short in terms of digital channels as opposed to its peers, according to Kenanga Research.
The group’s core net profit of RM118.3mil in the first half of its financial year (FY) 2022 was in line with Kenanga Research’s expectation, but missed consensus expectations, making up 46% and 37% of respective estimates. Kenanga Research this could be due to the overly optimistic gross written premiums growth expectations of the group.
“The interim dividend of 25 sen declared is also within and close to our anticipated 85% payout ratio,” it said.
LPI declared a first interim dividend amounting to RM99.6mil or 84.2% of the net profit attributable to shareholders.
Despite lowering its earnings estimates for FY22 and FY23 by 2%, the research house maintained its “market perform” call with an unchanged target price of RM14.10 per share.
“Although the group has the backing of a sizeable financial institution, the lack of guidance in terms of the Malaysian Financial Reporting Standards 17 adjustments may leave investors on the fence. Hence, we believe the risk-reward for the stock may be balanced for now,” it added.
