PETALING JAYA: LPI Capital Bhd
is expected to face a weaker fourth quarter (4Q26) as seasonal flood claims, elevated motor insurance claims and lower investment income weigh on earnings, despite improved performance in its fire insurance business.
The insurance company reported a core net profit of RM97mil in 3Q26, bringing nine-month core net profit to RM263mil, which was down by 11% year-on-year (y-o-y).
MBSB Research said the results were “decent” but nowhere as strong as it hoped.
The research house said 4Q may not perform as well.
“Seasonally, 3Q is LPI’s strongest quarter due to lower motor claims.
“In 4Q, a normalised motor segment result and the threat of higher claims, especially since the ringgit has begun to depreciate again, will likely drag earnings.
“Also note that fire segment’s combined ratio has been unnaturally high these two quarters – a normalisation could easily happen,” MBSB Research said in a report.
It noted that LPI’s investment portfolio remains relatively insulated from bond market volatility, given its limited exposure to bonds measured at fair value through profit or loss, or other comprehensive income, which accounted for just 13% of its portfolio.
However, it said LPI’s increased corporate bond holdings under the amortised-cost category rose to RM154mil in the 3Q from RM125mil in the previous quarter.
This suggests LPI may have added bonds at attractive yields as Malaysian Government Securities (MGS) yields rose.
However, since these bonds are largely held at amortised cost, any unrealised gains from subsequent bond price increases would not be reflected in earnings.
The research house maintained its “neutral” call on LPI but lowered its target price slightly to RM11.70 from RM11.72, based on a lower forecast price-to-book value ratio of 1.57 times for financial year 2027 (FY27).
Meanwhile, CIMB Research maintained its “hold” recommendation and target price of RM13.30, based on a forecast price-to-book value ratio of 2.73 times for FY26 underpinned by a post-dividend return on equity assumption of 18%, a cost of equity of 8.5% and a terminal growth rate of 3%.
It said while LPI’s strong fire franchise, defensive earnings characteristics, and capital returns following the disposal of its Public Bank Bhd stake should provide valuation support, it believes these tailwinds are countered by a more challenging underwriting outlook.
“With a sizeable equity income buffer removed following the disposal of its Public Bank stake, LPI’s investment thesis increasingly hinges on the strength of its general insurance underwriting franchise.
“A sustained recovery in motor underwriting profitability and any potential corporate exercise, particularly M&A activity, could serve as a key catalyst for a re-rating of LPI’s share price, in our view,” CIMB Research said.
An analyst expects claims pressure to persist in the 4Q, fuelled by climate-related incidents, escalating medical expenses and larger court-awarded payouts for motor bodily injury cases.
Seasonal weather conditions could also result in more flood-related claims, he said.
Lower MGS yields could help recover some investment valuations, while a larger share of investments held at amortised cost should help reduce fluctuations in investment income.
Shares of LPI were trading at RM13.16 at the time of writing.
