PETALING JAYA: A sustained recovery in motor underwriting profitability will be key to driving meaningful earnings and a valuation re-rating for LPI Capital Bhd
, according to CIMB Research.
The research house, which kept a “hold” call on the stock, said the disposal of its Public Bank Bhd stake would progressively reduce the group’s equity income buffer, as the insurer’s investment case would be increasingly dependent on the strength and profitability of its general insurance operations.
Public Bank holds a 44.15% stake in LPI.
CIMB Research said LPI reported a somewhat softer core net profit (CNP) of RM166.4mil in the six months ended June 30 (1H26), falling short of its and consensus’ forecasts by 6% and 11%, respectively.
The second-quarter (2Q26) results were also weaker than expected, with CNP falling 19.6% year-on-year (y-o-y), mainly due to higher motor claims, a decline in the miscellaneous insurance portfolio and fair value losses on investments, compared with a gain one year earlier. The motor claims ratio rose to 77% from 69% in 2Q25.
Following this, the research house cut its financial year ending Dec 31, 2026 (FY26) to FY28 earnings forecasts by 12.1% to 14%, mainly due to weaker motor underwriting and a more cautious outlook for premium growth.
CIMB Research has raised its assumption for the motor combined ratio to about 100% to reflect higher claims.
“Near- to mid-term earnings are expected to be supported by cross-selling synergies through the company’s bancassurance arrangement with Public Bank and selective expansion across the fire, motor, and miscellaneous segments,” CIMB Research said.
The research house lowered the stock’s target price to RM13.30 from RM14.30 after lowering its valuation multiple to 2.73 times from 3.31 times previously, mainly reflecting its lower earnings forecasts and weaker projected returns following higher- than-expected motor claims.
Similarly, MBSB Research expects LPI’s earnings weakness to persist in the near term. While stronger economic growth should support premium growth, the group may need time to rebuild its investment portfolio.
The research house said potential special dividends, however, should provide some support to the stock’s valuation.
“The company is currently trading at a forward FY27 price-to-book value of 2.03 times with a 10.1% dividend yield.
“LPI remains a defensive pick, due to its high dividend yields and a virtually 100% single-premium mix, which allows easier pass-on of costs at a time of aggressive cost inflation,” MBSB Research added.
The research house maintained its “neutral” call, but lowered its target price to RM14.54 from RM15.42.
LPI declared an interim dividend of 25 sen per share for 1H26, translating into a 60% payout ratio, compared with 30 sen per share and a 66% payout ratio in the corresponding period a year earlier, analysts noted.
It also declared a special dividend of 65 sen per share following the receipt of RM1.06bil in proceeds from the disposal of 220.3 million Public Bank shares at RM4.75 per share on May 21 this year.
Analysts said the divestment was undertaken to comply with regulatory requirements as LPI, being a subsidiary of Public Bank, was not permitted to hold shares in the bank.
Management had previously indicated that approximately 70.1% of the disposal proceeds, equivalent to RM737mil, would be returned to shareholders via special dividends.
