KENANGA Research has tweaked upward LPI Capital Bhd’s target price to RM16 from RM15 previously while retaining the general insurer’s “outperform” rating on the back of a long-term synergistic gains within the larger group which shall offset any near-term shortfall in investment income.
Despite LPI’s FY2024 dividend pay-out of 85% or 80 sen (FY2023: 66 sen) came slightly short of projection, the research house is seemingly bullish of the up to 17% dividend yield returns for shareholders from the upcoming sale of its 1.1% Public bank Bhd stake.
“(This) may soonest materialise by 2H FY2025 given the time needed to evaluate how best to deploy its strategies,” envisages financial analyst Clement Chua in a corporate results note.
“They entail how to incorporate (i) more cross-selling between insurance and financing products; (ii) widening outreach by integrating both LPI’s agent network and Public Bank’s branch footprint as well as (iii) synergising operational functions.”
All in all, LPI’s FY2024 net earnings rose by 20%. Lower re-insurance of fire class products from reversal of reserves drove overall retention of gross written premiums to 71.2% or +9.0 percentage points (ppts).
Meanwhile, a lower claim incurred ratio (40.4% or -4.6 ppts) also cushioned the softer fair value and finance income gains in its net financial result.
“We note that LPI’s investment return growth of 18% was nearly entirely led by higher dividend income of RM87.1 mil, of which c.RM43 mil (49%) is attributed to its 1.1% stake in Public Bank,” observed Kenanga Research.
“Industry-wise, fire class insurance competition appears to have waned as players have mostly adapted Phase 2A of the de-tariffication, suggesting that price comparison is more stable for consumers. ”
This aside, Kenanga Research opined that investors are more watchful for the upcoming sale of LPI’s 1.1% stake in its now-parent company Public Bank.
Under the Companies Act, LPI is required to dispose shares held within 12 months of the completion of Public Bank’s acquisition of a 44.2% stake in LPI in December 2024 (ie by December 2025).
“At current price levels, the 1.1% stake is valued at c.RM960 mil which we believe is more likely to be returned to shareholders as LPI typically does not retain its earnings (average dividend payout ~80%) and given any acquisition of competitors could be dilutive to its leading ROE (return in equity),” reckoned the research house.
“Assuming the sale led to a pay-out of 80%-100% to shareholders, special dividends of RM1.93-RM2.41/share could be expected (ie yields of 14%-17%).”
At the close of today’s (Feb 17) mid-day trading, LPI was down 2 sen or 0.14% to RM13.88 with 34,500 shares traded, thus valuing the insurer At RM5.53 nil. – Feb 17, 2025
