LPI’s 1QFY24 results beat expectations as net claims appeared lower following reversal of past claims provisions, prompting Kenanga to raise its FY24F-FY25F earnings by 13%-4%.
The house sees that there could be more intensive competition especially in the fire class insurance segment, but are not overly deterred by LPI’s position, thanks to their backing from a leading bank. Kenanga maintains its OUTPERFORM call but raised the TP to RM15.00 (from RM14.70)
The insurance company’s 1QFY24 net profit hit 30% of both full-year forecast and consensus full-year estimate. Kenanga said it finds positive deviations in significantly better net claims (mainly attributed by the fire class segment) from higher reversed claims reserves during the period.
YoY, 1QFY24 insurance service revenue came in flattish, underpinned by weakness in its fire class insurance products (-19%). On the flipside, its motor (+11%) and miscellaneous (+12%) products provided support, likely on the back on more policies demanded. That said, insurance service results surged by 44% as net incurred claims were significantly
lower at 40.1% (-11.7ppts) with claims provisions being reversed. The house opines this could be tied to previous frontloaded reserves owing to unprecedented flooding incidences in prior years. This overall translated to greater net profit of RM101.3m (+37%) following higher effective taxes (20.5%, +1.3ppts).
QoQ, 1QFY24 revenue declined by 8% following the same pressures from the fire class insurance segment but with insurance results also coming in better (+8%) on the back of a higher policy retention (77.6%, +19.7ppts). On the flipside, investment income nearly doubled, thanks to dividend payments from the group’s equity investments. All in, 1QFY24 net profit came in 29% stronger.
On outlook, Kenanga said LPI appears to be feeling the pinch with industry de-tariffication looking to level the competition in the fire class insurance segment. That said, the house believes that the group will maintain a leading position in the market thanks to its close affiliation to PBBANK with mortgage demand expected to stay supportive. In the meantime, the group will likely continue expanding its agency force and bancassurance network for a more direct outreach to customers. Although the claims ratio might see a decline as overall activities normalize, reinsurance coverages could be reviewed as climate conditions worsen, raising risks tied to certain policies.
The house raised the TP as it rolled over the valuation base year to FY25F on an unchanged 2.6x PBV. This represents a 25% premium against the industry average of 2.1x.
expense ratio.
