Kenanga Research expects the newly implemented Malaysian Financial Reporting Standards (MFRS 17) would translate to better earnings presentation for LPI Capital Bhd as prior conservative provisional methods should moderate.
In a note today, the research house said that meanwhile, stabilisation of claims and reinsurance ratio may ease earnings pressure.
Effective Jan 1, 2023 reporting periods, the new accounting standards more evenly distribute underwriting revenue recognition over a policy’s term, which would undermine accounts that report lumpier revenues during their earlier periods.
In addition to the establishment of a new ‘contractual service margin’ liability, revenues and retained earnings are expected to decline,” Kenanga said.
Thus, it said LPI may experience a reversed trend as prior practices implied higher provisioning and less revenue reported in earlier periods.
“Hence, complying with MFRS 17 may in effect bolster recognition on an overall basis,” it said.
Kenanga Research has maintained an ‘Outperform’ call on the group with a target price of RM14.10.
“At current price levels, we believe there are buying opportunities as LPI’s premium remains justified based on its better dividend prospects and earnings, notwithstanding support from its affiliation with Public Bank,” it said.
While there is no guided impact with regard to MFRS 17 to group earnings, Kenanga said investors may be more inclined with LPI as opposed to peers who are expecting earnings erosion.
At 12.30 pm, LPI’s share price gained two sen to RM12.62 with 26,900 shares traded on Bursa Malaysia.
