Kenanga Research said it maintains its forecasts on LPI Capital for now, with its assumptions yet to reflect any synergistic gains from Public Bank.
PETALING JAYA: Analysts are mostly positive about LPI Capital Bhd
’s prospects, following the recent acquisition of the insurer’s 44.15% stake by Public Bank Bhd.
LPI Capital posted a net profit of RM124mil for the third quarter of financial year 2024 (3Q24) on the back of RM499.8mil in revenue.
Kenanga Research, in a report, said the insurance group’s latest results came in within expectations.
“This is due to typically softer reporting in 4Q period as claims may pick up on higher seasonal movements and dividend income to narrow,” it added.
The research house noted that LPI Capital is awaiting synergies from Public Bank’s acquisition.
Kenanga Research said: “With LPI facing sustained challenges in the fire insurance space following the industry’s detariffication, we opine that the recently announced acquisition by Public Bank is timely.”
According to Public Bank previously, less than 25% of LPI Capital’s revenues are made up of referrals from Public Bank mainly from its mortgage business, which suggests more opportunities to collaborate in the future.
This could be applicable to its non-residential mortgage and motor financing business of which in Public Bank’s books, is at RM86.4bil and RM72.3bil respectively, while LPI’s insurance contracts amount to RM2.3bil, said the research house.
Kenanga Research added LPI Capital would also be able to tap into Public Bank’s 260-strong branch network for more cross-selling and higher flow-through from its industry-leading lending business, with minimal investment on the insurer’s front.
“We maintain our forecasts on LPI Capital for now, with our assumptions yet to reflect any synergistic gains from Public Bank.
“Our forecast of a 3% decline in FY25 earnings is attributed to the subsiding of reversals in reinsurance reserves seen in FY24,” it said.
Kenanga Research has also maintained an “outperform” call on the stock with a target price (TP) of RM15 per share.
“We believe this is fair given better net margins of 17% versus peer’s 11% and higher dividend returns of 6% to 7% versus peer’s 4% to 5%.
“LPI Capital’s premium valuation may also be supported by its long-term viability from its affiliation with Public Bank with the pending acquisition further solidifying synergies,” the brokerage firm noted.
Meanwhile, MIDF Research said the insurance group’s latest 9M24 core net profit of RM303mil was above its 88% and street consensus 85% of full-year forecasts.
“The core themes include gross written portfolio (GWP) growth, which is still steady, improved combined ratio, and normalisation in investment income,” the research house said in a recent note to clients.
MIDF Research has kept a buy call on the stock with an unchanged TP of RM14.52 based on an unchanged FY25 forecast price-to-book value of 2.42 times.
The key downside risks are weak investment results, ramp up in claims and weaker GWP growth, added the research house.
