LPI CAPITAL BHD

MIDF Research Neutral

Target price: RM16.70

DESPITE its second quarter results coming in below expectations, MIDF Research expects LPI Capital Bhd’s performance to improve primarily due to its strong presence in the fire and motor insurance segments.

“While we remain optimistic, we believe the industry’s headwinds post liberalisation will continue to be a challenge which will put pressure on further growth,” it said in a note.

The research house maintained its “neutral” call on the stock with an unchanged target price of RM16.70.

It expected the group to be able to continue to strengthen its market share in the general insurance market, supported by its standing as the country’s largest property underwriter.

“This will likely provide strong revenue base for the group moving forward,” it said.

The insurer had posted a net profit of RM65.74mil in the second quarter ended June 30, 3.4% less than the RM68.06mil recorded in the previous year’s quarter on the back of a flattish revenue of RM353.05mil.

The group’s second-quarter profit before tax slipped to RM86.9mil from RM89.2mil in the year-ago quarter due to non-recurring gains of RM1.5mil from the sale of equity investment in 2017.

For the first half of 2018, the insurer’s net profit came to RM138.24mil, just slightly under the RM138.63mil posted in the previous corresponding period.

Given that earnings came in below its expectations, the research house revised downwards its estimate for FY18.

It also lowered its FY18 operating revenue growth forecast to 7.8% year-on-year, taking into account a potential contraction in premiums.

This shrinks its core net profit assumption by 9.2% from its previous estimate.

“At this juncture, we are maintaining our forecasts in FY19, due to our assumption of more stable operating environment next year while remaining conservative on revenue growth,” it said.

It noted that the group had announced a 26 sen dividend, representing 75% of net profit.