We met up with LPI’s management recently and came away from
the meeting confident that the group
will sustain its earnings momentum moving forward, driven by: (i) higher
underwriting surplus mainly from its non-motor segments, (ii) lower claims
ratio, and (iii) stronger agency force. Maintain BUY, with an unchanged FV of
RM15.40, pegged to a 3-year PER of 19.4x.
Solid record. LPI’s FY11 results stood strong in spite of
the challenging and competitive business environment. Management is targeting
to grow its gross premiums by some 15%,
boosted by: (i) new businesses from strategic partners which are also global
insurers, (ii) strong growth from its construction-related business, supported
by the rollout of more Economic Transformation Programme (ETP) projects, and
(iii) stronger growth in its marine, aviation and transit business, which is
generally profitable. We understand that management intends to strengthen its
agency force as it believes that it may be able to attract agents from other
insurance companies given the prevailing uncertainties arising from M&As in
the industry.
MMIP likely to still
see shortfall in FY12. The overall claims ratio in FY11 shot up to 48.9%
from 47.7% y-o-y due to its share of losses incurred in relation to the
Malaysian Motor Insurance Pool (MMIP). LPI’s share of MMIP losses in FY11
amounted to RM11.1m as MMIP had chalked
up a cumulative shortfall over 7 quarters
as at end-3Q11. We expect MMIP to
continue to fall short of funds over the next two years, at an estimated
RM2m–RM3m per quarter. Nonetheless, management is confident of keeping its
claims ratio below 50% in tandem with its stringent underwriting practices.
Sustainable dividend
payout expected. Generally seen as a
dividend stock, management has guided that
LPI would be able to maintain a
100% dividend payout ratio given its high capital adequacy ratio (CAR) that is well above the required 130% set by
Bank Negara Malaysia. We are confident that this is possible in light of its
stable cash flow outlook and net cash position.
Maintain BUY. We
continue to like the group’s record in creating shareholder value by consistently delivering robust results and growth. That said, given its relatively high share price, we do not discount the
possibility of the company declaring another bonus issue or share split to
reward its shareholders as well as to enhance the stock’s liquidity. Maintain
BUY, with an unchanged FV of RM15.40, based on its 3-year PER band of 19.4x.
Source: OSK188
No comments:
Post a Comment