RHB maintains outperform call on LPI

RHB maintains outperform call on LPI

Tags: LPI | RHB

Written by The Edge Financial Daily
Monday, 12 October 2009 15:30

RHB Research has maintained its outperform call on LPI CAPITAL BHD [] with a higher fair value to RM14.95 following an upwards revision in its earnings forecast.

LPI recorded 3Q09 net profit of RM32.9 million, an increase of 44.7% quarter-on-quarter (q-o-q), which took its 9M09 earnings to RM91.1 million, up 27.3% year-on-year (y-o-y).

“This accounts for 80.2% and 82.7% of our and consensus expectations respectively. The deviation was mainly due to higher insurance gross premium and investment income at holding level,” RHB said. No dividend was declared in the quarter.

LPI’s 9M09 revenue grew by 11.9% y-o-y on the back of higher premium underwritten by Lonpac, which RHB believed was closely related to its expanding agency force and loan growth from PUBLIC BANK BHD [].

However, it said underwriting surplus was slightly below its expectation due to lower retained ratio against its assumption as a result of its fire-skewed portfolio, which the research house said has a lower retention rate versus motor, and higher management expenses due to increase in manpower.

RHB cut retention ratio to 35% from 34.5% and increased management expense to 19.8% from 19.5% previously. However, it noted that LPI’s 3Q09 underwriting surplus increased by 59.6% y-o-y, resulting in its 9M09 underwriting surplus to increase by 57.1% y-o-y.

“We believe this was caused by lower claims ratio, as economy has gradually improved, as well as its ability to obtain more retail business which is more profitable against lumpy underwriting,” RHB said.

It also increased the rate of return for investment at the holding level to 5.5% from 5% previously. Hence, earnings forecasts were increased by 2.3% to 10.1% per annum in FY09-11.

It added that LPI’s investment income in the quarter has expanded ten-fold q-o-q and 25.8% y-o-y. Going forward, it expected investment income from interest and dividend to remain a consistent contributor to overall earnings.

The fair value revision to RM14.95 from 13.58 previously is based on unchanged 15 times FY12/10 earnings per share.

http://www.theedgemalaysia.com/business-news/151122-rhb-maintains-outperform-call-on-lpi.html