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Tuesday, July 16, 2019

Affin Hwang maintains Buy on LPI, TP at RM18.90 as 1H earnings meet expectations

Tuesday, 16 Jul 20198:48 AM MYT

KUALA LUMPUR: Affin Hwang Capital research reiterated its buy call on LPI Capital Bhd
with an unchanged target price of RM18.90 as its 1H19 net profit came in line with expectations.

The research house said the insurer's six-month net profit of RM147.9mil, which was up 7% year-on-year (y-o-y) accounted for 43% of its 2019E forecast but came within its estimates as it expects a stronger second half.

"Results for 1H19 was driven by net earned premium growth of 10.4% yoy (fire +5.4% yoy;motor +14.7% yoy; marine/aviation/transportation +6.5 yoy; miscellaneous +14.3% yoy)," said Affin Hwang in a note.

"Investment income for 1H19 grew by 17.4% yoy, though on a qoq basis, 2Q19 saw a decline of 39% arising from weak market performances.

"During the period under review, LPI saw higher net claims incurred (1H19 +16% yoy), and higher net commission expense (+40% yoy), of which were also being reflected as higher ratios of 46.1% in 1H19 for net claims (1H18: 44%) and 6.2% in 1H19 for net commission (1H18: 4.9%)."

Affin Hwang noted that LPI's gross written premium (GWP) rose 5.1% y-o-y to RM827.5mil in 1Q19 due to its strong distribution channel and global partnership, despite the general insurance industry's GWP falling 7.6% over the same quarter.

The fire segment continued to drive underwriting profit with a 41% contribution to 1H19's net earned premium, said Affin Hwang.

This was followed by the motor segment at 31.1%, miscellaneous at 24.7% and MAT at 2.1%. The fire segment accounted for about 68.3% of 1H19 underwriting surplus.


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