LPI Capital ended the financial year with no surprises. Core earnings stood at 97% and 102% of our and consensus forecasts, respectively, while underwriting margins concluded strongly as expected at 26.0%. We note, however, that its core profit growth at 8.0% lagged behind premiums growth at 13.9% and we view that such a scenario will continue to be so for FY13 and FY14 given the intensifying competition and further adaptation to regulatory changes. LPI declared a total interim dividend payout of 65 sen per share. Maintain NEUTRAL, with FV upgraded to RM15.75. This report also introduces our FY14 forecasts.
Superior underwritings margins. LPI Capital’s total gross written premiums for FY12 rose 13.9% y-o-y, despite 4Q numbers contracting 15.2% q-o-q from the preceding quarter. As predicted in our previous note, underwriting (UW) margins emerged strong in 4Q for its general insurance business, achieving 26.0% vs 9MFY12's 23.3% and FY11's 26.2%, thanks to improved claims ratio of 47.5% in FY12 vs 48.9% in FY11 and superior to the industry's last reported claims ratio of 60%. Segment-wise, we do not note any unusual claims upside while the motor segment, which tends to contribute a bulk of the claims experience, recorded a 75.8% claims ratio, which was better than FY11's 81.1%.
Second interim dividend of 50 sen per share. LPI has declared a total interim dividend of 65 sen per share for the financial year, which translates to 86.2% dividend payout and a decent 4.4% dividend yield based on the current price. The current interim dividend payout of 50 sen per share translates into a 3.4% yield. We note that the dividend payout is slightly below our FY12 forecasts and its historical track record. However, we are maintaining our FY13-14 forecasts unchanged at 95% payout as we do not see signs of stress in its capital.
Maintain NEUTRAL, introducing FY14 forecasts. We maintain our NEUTRAL call on LPI. We also introduce our FY14 forecasts. Pegged to an increased 13.4x three-year PE band (from 13x previously), our FV is upgraded by 6.2% to RM15.75. This FV implies LPI's price-to-book ratio at 2.4x FY13f BV, which is fair in our view as the company deserves a slight premium to the industry for its size and dividend track record.
Superior underwritings margins. LPI Capital’s total gross written premiums for FY12 rose 13.9% y-o-y, despite 4Q numbers contracting 15.2% q-o-q from the preceding quarter. As predicted in our previous note, underwriting (UW) margins emerged strong in 4Q for its general insurance business, achieving 26.0% vs 9MFY12's 23.3% and FY11's 26.2%, thanks to improved claims ratio of 47.5% in FY12 vs 48.9% in FY11 and superior to the industry's last reported claims ratio of 60%. Segment-wise, we do not note any unusual claims upside while the motor segment, which tends to contribute a bulk of the claims experience, recorded a 75.8% claims ratio, which was better than FY11's 81.1%.
Second interim dividend of 50 sen per share. LPI has declared a total interim dividend of 65 sen per share for the financial year, which translates to 86.2% dividend payout and a decent 4.4% dividend yield based on the current price. The current interim dividend payout of 50 sen per share translates into a 3.4% yield. We note that the dividend payout is slightly below our FY12 forecasts and its historical track record. However, we are maintaining our FY13-14 forecasts unchanged at 95% payout as we do not see signs of stress in its capital.
Maintain NEUTRAL, introducing FY14 forecasts. We maintain our NEUTRAL call on LPI. We also introduce our FY14 forecasts. Pegged to an increased 13.4x three-year PE band (from 13x previously), our FV is upgraded by 6.2% to RM15.75. This FV implies LPI's price-to-book ratio at 2.4x FY13f BV, which is fair in our view as the company deserves a slight premium to the industry for its size and dividend track record.
FY12 RESULTS HIGHLIGHTS
Other expenses ratios slightly higher. We note that LPI’s UW surplus growth (at the general insurance segment) of 9.9% y-o-y and core net profit growth at 8.0% y-o-y lagged behind its premiums growth at 13.9%. We believe its earnings momentum were moderated by the company's prudent management attributed to i) lower retention ratio at 56.5% vs 58.0% in FY11 due to a significant ceding of reinsurance premiums in the marine, aviation and transit (MAT) segment, ii) higher net commission ratio at 7.9% vs FY11's 6.8%, and iii) higher management expenses (ME) ratio at the general insurance segment at 18.6% vs FY11's 18.0%. Note, however, that the lower retention of net earned premiums contributed partially to the slight uptick in the said expenses ratio. We are of the view that this trend will persist in FY13-14 in light of intensifying competition and changing regulations, which may squeeze operating margins.
Source: OSK
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