PETALING JAYA: As economic activity resumes, LPI Capital Bhd is expected to see continued growth in net earned premiums for the financial year 2022 (FY22).

       However, Kenaga Research also expects the incurred claims ratio for the insurance company to normalise towards about 40% versus the 37.7% registered in the fourth quarter ended Dec 31, 2021 (Q4 FY21).

       In the Q4 of FY21, LPI posted a net profit of RM73.07mil, which was 23.3% lower from the same period a year ago amid lower underwriting profit caused by higher net claims incurred in the quarter.

       For the full-year period, net profit increased marginally by 2.36% to RM344.68mil, while revenue rose by 5.93% to RM1.72bil.

       Kenanga Research said that while the results were within expectations, it is reducing FY22 estimated core net profit by 11% to account for the one-off prosperity tax, which was introduced in Budget 2022 on companies with chargeable income over RM100mil for the year of assessment 2022.

       In the report, the research firm introduced its FY23 estimated core net profit of RM367mil, which represents a 3% growth without the prosperity tax.

       The research firm said while near-term price upside is limited due to lack of catalyst, the stock’s dividend yield of around 5% provides a safety net.

       It is maintaining a “market perform” call on the stock with an unchanged target of RM14.20 as it ascribes an unchanged price-to-book value of 2.6 times on FY22 estimated book value per share of RM5.43.

       This does not include the impact of the prosperity tax as it believes the market will likely treat the tax as a one-off item.

       Meanwhile, AmResearch also expects LPI’s premium growth to gradually pick up pace in tandem with the economic recovery. However it sees continuous competitive pressure on the pricing for the group’s fire products with the impending implementation of Phase 2 detariffication.

       It maintains a hold call with a lower fair value of RM14.20 per share from RM14.30 previously. Its revised fair value is based on FY22 price-to-book value of 2.4 times, supported by a 15.7% return on equity.