LPI Capital - A steady set of 4Q12 earnings

Period    4Q12/FY12

Actual vs.  Expectations    The FY12 PAT of RM166.9m was within ours (98%) and the consensus expectation (100%). The 4Q12 PAT of RM47.4m rose an encouraging 20.8% YoY. 

Dividends   The group declared a second interim single tier dividend of 50 sen per share.

Key Result Highlights    On a YTD basis, the key positive factor was the solid gross premium growth.  LPI registered a 13.9% YoY growth rate in its gross written premium to RM1,033.9m, driven by the fire and marine divisions. This was above the industry premium growth rate of 8%. On a net premium basis, it has achieved a growth rate of 11.0% to 584.5m.  The fire division’s gross written premium of RM331.3 grew by 16% YoY and that of the marine of RM91.8m by 155% YoY.

 On a QoQ basis, the group’s 4QFY12 PAT was flattish at RM47.4m (-0.5% QoQ). This was mainly due to the lower investment incomes as the group did not receive any dividends from Public Bank during the quarter.  

 In 4Q12, the total portfolio claims ratio was low at 40.3% as compared to 3Q12’s 45.9% and was also substantially lower than 1Q12’s 60%. On a full year basis, this claim ratio was within our full year forecast of 48%.  Meanwhile, the fire division’s loss ratio improved to 10.1% (vs. 3Q12: 14.9%), the motor division to 73.0% (vs. 3Q12: 75.1%), the miscellaneous division to 40.3% (vs. 3Q12: 45.0%) and the marine, however, aviation & transit division to 45.3% (vs. 3Q12: 19.4%).  

 A relatively low expense ratio was seen in FY12 at 11%, which was encouraging and was also within management’s guidance and our forecast of 12%. 

Outlook   LPI delivered a higher than industry growth that we believe would be sustainable. Its gross premium portfolio rose beyond RM1.0b and together with the lag between the higher premium growth and profit, we believe its earnings have more room to grow in 2013.  

 Its business cash generation remains the strongest in the sector.  This should continue to support a high payout. We are estimating a dividend payout ratio of 90% for FY12-FY14 in our model. Based on our estimates, LPI could potentially pay out RM0.79-RM1.21 as dividends for FY12-FY14, translating into net dividend yields of 5%-8%.  

Change to Forecasts  Our net profit forecasts are largely unchanged as management said that there is a time lag of 12 months to recognise profits and hence, we continue to see a strong earnings momentum flowing through throughout FY13.

Rating  MAINTAIN OUTPERFORM

 Our OUTPERFORM rating is maintained as the current share price implies a 16% total upside to our target price.

Valuation    Maintaining our TP at RM16.10 based on 15.0x FY13 PER, which also translate to a 2.26x BV and a 7.0% net yield. 

Risks   There could be a risk of a lower dividend payout as the group may need to conserve capital in 2013-14 if it intends to achieve a higher premium growth than what we are expecting now.

Source: Kenanga