LPI’s FY16 results above expectations

KUCHING: LPI Capital Bhd’s (LPI) financial year 2016 (FY16) results have come in either above or below expectations, with some analysts viewing the group’s 80 sen dividend per share (DPS) as a positive surprise.

In a statement on Bursa Malaysia, LPI announced that for the financial year ended December 31, 2016, the group’s profit before tax recorded a strong growth of 32 per cent to RM518.9 million from RM393.1 million in financial year ended December 31, 2015.

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), LPI’s FY16 recurring net profit of RM289.2 million was above its expectation but comparatively, only made up 90 per cent of fullyear consensus’ estimate.

Meanwhile, LPI’s FY16 core net profit (NP) of RM286.9 million came in within the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) house expectation, making up 104 per cent/89 per cent of its/consensus’ full-year estimate, respectively.

“To our positive surprise, a second interim dividend of 55 sen was declared, bringing fullyear DPS to 80 sen which topped our/consensus’ FY16E DPS of 70 sen/71 sen,” Kenanga Research said.

On the detariffication of motor and fire insurance, although it could trigger greater intensity of competition among the insurers, Kenanga Research was comforted by the group’s strategies in embracing such trend.

“While the general perception is that the detariffication of motor and fire insurance could trigger greater intensity of competition among the insurers, thus leading to margin compression, we are comforted by management’s strategy that will be supported by a bigger team actuarial team, investment in new systems as well as its strategic portfolio exposure, which has relatively low exposure to the motor segment compared to other insurers.

“On top of that, the group has also been appointed the main insurer for MRT Line 2; which marked the second insurance business from MRT,” the research arm said.

Although the Gross Written Premium (GWP) from MRT Line 2 was less than five per cent as of LPI’s FY16 GWP (with more reinsurers), the research arm saw this milestone as a recognition from a leading construction player which boosts the group’s reputation.

All in, Kenanga Research maintained ‘market perform’ with a higher target price of RM17.30 per share.

Meanwhile, MIDF Research revised higher its FY17 earnings forecast by 11 per cent to take into account LPI’s higher retention ratio.

“This may allow it to capture more premium income due to its robust capital position,” the research arm said.

“As such it will allow the group to retain more of its premium and able to withstand better the de-tariffed market.”

It added that the revision also reflects improvement in LPI’s claims ratio.

However, the research arm expected LPI’s claims recognition from Malaysian Motor Insurance Pool will start to normalise this year.