PETALING JAYA: The synergistic gains between LPI Capital Bhd
and Public Bank Bhd (PBB) will only be seen in the second half of the financial year ending Dec 31, 2025 (2H25), given the time needed to evaluate how best to deploy its strategies.
“We gathered among them are to incorporate more cross-selling between insurance and financing products,” Kenanga Research said.
According to the research house, they will also be able to widen their reach by integrating LPI’s agent network and PBB’s branch footprint as well as synergise operational functions.
“Industry-wise, fire class insurance competition appears to have waned as players have mostly adapted to Phase 2A of the detariffication, suggesting that price comparisons are more stable for consumers,” Kenanga Research added.
It believed that investors are more watchful for the upcoming sale of LPI’s 1.1% stake in its now-parent company, PBB.
Under the Companies Act, they are required to dispose of shares held within 12 months of the completion of PBB’s acquisition of a 44.2% stake in December 2024 (for example by December 2025).
“At current price levels, the 1.1% stake is valued at RM960mil which we believe is more likely to be returned to shareholders as LPI typically does not retain its earnings (average dividend payout of 80%) and any acquisition of competitors could be dilutive to its leading return on equities,” the research house explained.
It added that should the sale lead to a payout of 80% to 100%, shareholders can expect special dividends of RM1.93 to RM2.41 per share, translating to yields of 14% to 17%.
LPI’s financial year 2024 (FY24) net profit of RM377.1mil made up 99% of Kenanga Research’s full-year forecast and 97% of consensus full-year estimate.
The research house said its interim dividend of 50 sen declared, amounting to a total FY24 payment of 80 sen (85% payout), was slightly below its anticipated 85 sen (90% payout).
“Still, it does not take away its leading yield position in the financial sector with the upcoming sale of its 1.1% PBB stake likely to spur further returns to shareholders (up to 17% in special dividend yield).
“Additionally, a near-term shortfall in investment income would be made up by long-term synergistic gains within the larger group.
“Maintain ‘outperform’ with a higher rolled over target price of RM16 from RM15,” Kenanga Research added.
Meanwhile, MIDF Research believed the key driver of LPI’s strong performance was the robust recovery in the economy seen in 2024.
However, external factors, including geopolitical tensions and climate change, may be a key feature in 2025, affecting demand for insurance and claims frequency.
“Nevertheless, we are confident that the management will continue to effectively manage these challenges through prudent underwriting and superior customer service.
“Furthermore, we believe that being a new member of the PBB corporate family enhances opportunities for the group to further cross-sell insurance products to the PBB customer base and develop tailored products catering to the customers’ insurance needs.
“We understand that plans are also underway to further automate processes and enhance the group’s distribution channels,” the research house said.
MIDF has maintained a “buy” call with an unchanged target price of RM14.52 based on an unchanged FY25 price to book value of 2.42 times.
