Stock Name: LPI
Company Name: LPI CAPITAL BHD
Research House: RHB
LPI Capital Bhd
(Jan 12, RM13.96)
Maintain 'underperform' at RM13.90 with fair value of RM12.37: LPI recorded 4QFY12/10 net profit of RM36.9 million (+2% q-o-q) bringing its full-year FY10 earnings to RM137.9 million (+9.4% y-o-y). This accounted for 98% and 99% of our and consensus full-year estimates respectively.
LPI declared a second single-tier interim dividend of 45 sen, bringing total dividends declared to 55 sen year-to-date, implying a net payout of 86%, higher than our forecast 74% payout.
LPI's 12M10 earnings grew by 9.4% y-o-y, on the back of revenue growth of 12.6%. Gross premiums grew by 12% during the year of which 34% was ceded to reinsurers, similar to FY09's 35% reinsurance ratio. The lower reinsurance ratio, combined with the 12% premium growth and a lower combined ratio for FY10 of 76.2% (FY09: 76.9%), resulted in 19.1% growth in underwriting surplus.
LPI's combined ratio showed improvement y-o-y in both its commission and management expenses by one percentage point (ppt) and 0.4 ppt respectively, which more than offset the higher claims ratio of 47.8% (+0.6 ppt y-o-y).
It was recently announced that beginning this year, employers are required to purchase medical insurance coverage for each foreign worker, at an annual premium of RM120 per employee. We believe this new business will be worth a total of RM200 million, based on an estimated 1.8 million foreign workers currently in Malaysia.
We believe LPI will be able to derive incremental revenues from this new business and we expect it to be profitable given: 1) a limit of RM10,000 claims per employee; and 2) claims can only be made at government hospitals, which are cheaper than private hospitals. However, given that it is a small business in total and the estimated impact towards LPI's bottomline is expected to be minimal, we are leaving our forecasts unchanged for the time being.
Risks included change in government policy that may result in lower car prices; jump in claims ratio; combined ratio may exceed 100%; and intense competition from the insurance sector liberalisation.
In our 2011 sector strategy report, we adjusted LPI's FY10-12 claims ratio assumptions which subsequently raised our earnings forecasts by 5%-13%. We are not making any further changes for the time being. We introduce our FY13 forecast.
Our fair value is RM12.37 (post earnings revision in 2011 sector strategy report) based on unchanged target 16 times FY11 EPS. Maintain 'underperform'. ' RHB Research Institute, Jan 12
This article appeared in The Edge Financial Daily, January 13, 2011.
Company Name: LPI CAPITAL BHD
Research House: RHB
LPI Capital Bhd
(Jan 12, RM13.96)
Maintain 'underperform' at RM13.90 with fair value of RM12.37: LPI recorded 4QFY12/10 net profit of RM36.9 million (+2% q-o-q) bringing its full-year FY10 earnings to RM137.9 million (+9.4% y-o-y). This accounted for 98% and 99% of our and consensus full-year estimates respectively.
LPI declared a second single-tier interim dividend of 45 sen, bringing total dividends declared to 55 sen year-to-date, implying a net payout of 86%, higher than our forecast 74% payout.
LPI's 12M10 earnings grew by 9.4% y-o-y, on the back of revenue growth of 12.6%. Gross premiums grew by 12% during the year of which 34% was ceded to reinsurers, similar to FY09's 35% reinsurance ratio. The lower reinsurance ratio, combined with the 12% premium growth and a lower combined ratio for FY10 of 76.2% (FY09: 76.9%), resulted in 19.1% growth in underwriting surplus.
LPI's combined ratio showed improvement y-o-y in both its commission and management expenses by one percentage point (ppt) and 0.4 ppt respectively, which more than offset the higher claims ratio of 47.8% (+0.6 ppt y-o-y).
It was recently announced that beginning this year, employers are required to purchase medical insurance coverage for each foreign worker, at an annual premium of RM120 per employee. We believe this new business will be worth a total of RM200 million, based on an estimated 1.8 million foreign workers currently in Malaysia.
We believe LPI will be able to derive incremental revenues from this new business and we expect it to be profitable given: 1) a limit of RM10,000 claims per employee; and 2) claims can only be made at government hospitals, which are cheaper than private hospitals. However, given that it is a small business in total and the estimated impact towards LPI's bottomline is expected to be minimal, we are leaving our forecasts unchanged for the time being.
Risks included change in government policy that may result in lower car prices; jump in claims ratio; combined ratio may exceed 100%; and intense competition from the insurance sector liberalisation.
In our 2011 sector strategy report, we adjusted LPI's FY10-12 claims ratio assumptions which subsequently raised our earnings forecasts by 5%-13%. We are not making any further changes for the time being. We introduce our FY13 forecast.
Our fair value is RM12.37 (post earnings revision in 2011 sector strategy report) based on unchanged target 16 times FY11 EPS. Maintain 'underperform'. ' RHB Research Institute, Jan 12
This article appeared in The Edge Financial Daily, January 13, 2011.
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