LPI likely to face another challenging year in 2021

KUALA LUMPUR: LPI Capital Bhd (LPI) will likely face another challenging year in 2021 despite recording an improvement in its fourth quarter of the financial year 2020 (4QFY20) results, analysts observe.

In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) said: “2021 could be another challenging year for LPI given the continued risks of prolonged lockdowns coupled with liberalisation of motor and fire tariffs in June.”

Nevertheless, it said it believed the first half of FY21 (1HFY21) will still be robust as long as the economy remains open, abetted by lower claims incurred in a partial lockdown.

“We expect the motor segment to remain robust at least for 1H21 given the extension of the vehicle sales tax exemption with the miscellaneous and MAT segments supporting growth in tandem with the expected economic recovery,” it added.

On the company’s performance in FY20, year-on-year (y-o-y), despite the pandemic-induced challenges, LPI’s FY20 core net profit (CNP) saw a significant improvement (up four per cent) on the back of lower claims (down six per cent) as gross earned premiums (GEP) moderated (two per cent compared with six per cent in FY19).

“The two main GEP contributing segments, fire (circa 41 per cent) and miscellaneous (circa 30 per cent) saw contrasting fortunes with fire flattish and miscellaneous growing five per cent, while the motor segment chalked up a five per cent growth.

“Combined ratio eased by 350bps to 67 per cent as both claims incurred ratio and commission ratio eased by 270bps and 70bps, respectively, offset by management expense remaining flattish at 20 per cent,” Kenanga Research said.

Other income saw moderation (up three per cent) despite the 15 per cent shortfall in investment income which was offset by capital gains of RM18 million, it noted.

On a quarterly basis, LPI’s 4QFY20 CNP rebounded 10 per cent to RM95 million with GEP in tow (up eight per cent) to RM405