LPI well positioned despite rising headwinds
KUALA LUMPUR: LPI Capital Bhd (LPI) has been viewed as ‘wellpositioned’ in the insurance sector, anchored by the resilient takeup in its fire insurance segment and engineering insurance that falls under miscellaneous segment.
Following a recent meeting with LPI, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) came away feeling positive on the company’s prospects. It pointed out that LPI is positioned well despite the stagnating motor insurance segment.
Of note, since the phased liberalisation of motor and fire insurance, more varieties of motor insurance with add-on coverage are being introduced by market players.
“While our concerns are on the undercutting of premium pricing that could induce greater competition, management noted that there are, in fact, not much of premiums revision seen thus far among the new motor insurance products, thanks to the risk-based capital framework in place as well as the thin margins that motor insurance carries.
“Another plus points that are sheltering the group to the stagnating motor insurance is its limited portfolio exposure which contributes 21 per cent of the group’s first half of 2017 (1H17) gross written premiums (GWP), visà-vis other big players that have more than 50 per cent exposure as well as the niche focus in the comprehensive and private vehicles which give better experience ratings,” the research team opined.
Aside from that, it commended LPI’s strategic move to beat the weak industry trend.
It noted that while the the first quarter of 2017 (1Q17) insurance premium growth is in negative territory, LPI managed to claw a three per cent growth thanks to its strategic portfolio exposure.
“For the main driver - fire insurance (which contributes 43 per cent to the GWP in 1H17), while we observed there are not much changes in the market given that the premium rates for existing fire products will continue to be regulated with gradual adjustment until 2019, we were reassured by the group’s strategy to focus from the perspective of top-line and bottomline,” Kenanga Research said.
The research team also highlighted that while the group’s marine, aviation and transit segments continued to see softness due to the headwinds in the oil and gas (O&G) segment, miscellaneous segment is seeing resilient growth.
“It is notable that for the segment, the group has gained better traction thanks to the upcoming infrastructure and construction jobs from government, which are the MRT 2, LRT 3, East Coast Railing, Borneo Highway and Rapid, which should anchor low teens growth for the group,” it added.
Overall, Kenanga Research maintained a ‘market perform’ call on the stock. It said, “Postmeeting, we are turning more sanguine on the group’s prospect given its solid financials as well as the strategic measures to counterbalance the macro headwinds.”
It added, while no changes were maid to its FY17 forecast earnings, it projected a higher core net profit (an increase by five per cent) for LPI’s FY18 to account for higher GWP growth of 5.8 per cent from minus one per cent previously.