PP 7767/09/2010(025354)

12 April 2010
RHB Research

Malaysia Corporate Highlights

Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e 12 April 2010
MARKET DATELINE

LPI Capital Share Price

Fair Value
:
:
RM13.82
RM16.65
Off To Decent Start Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (LPI; Code: 8621) Bloomberg: LPI MK

Net Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing DY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 738.3 126.1 90.9 21.0 15.2 - 2.1 3.7 14.0 0.1 4.9
2010f 874.3 154.0 111.0 22.2 12.4 106.0 2.0 3.9 16.4 0.1 5.9
2011f 1,022.0 174.4 125.7 13.2 11.0 119.0 1.9 4.1 17.7 0.1 6.7
2012f 1,206.0 206.0 148.5 18.1 9.3 - 1.8 4.6 19.8 0.0 7.9

Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ No surprises. LPI reported 1QFY12/10 net profit of RM38.3m (+9.6% qoq; RHBRI Vs. Consensus
Above
+8% yoy), which accounted for 25% of our and 26% of consensus full-year
In Line
estimates respectively.
Below

♦ Better underwriting performance. 1Q revenue grew 11.5% yoy on the

Issued Capital (m shares) 138.7
back of higher gross premiums. We understand that this was supported by Market Cap (RMm) 1,917.2
growth across most segments, except for MAT (marine, aviation and transit), Daily Trading Vol (m shs) 0.02
which was rather flat. Net profit growth, however, was at a slower +8% yoy 52wk Price Range (RM) 9.30-14.30
as a result of a higher effective tax rate of 21.5% (1QFY09: 16%). QoQ, Major Shareholders: (%)
revenue jumped 52%, although this was mainly a reflection of seasonality. Tan Sri Dato’ Dr. Teh 44.06
Hong Piow
Net profit, however, was up 9.6% qoq with higher (lumpy) investment Kepunyaan Chinta 8.52
income, offset by higher claims ratio (e.g. motor claims ratio increased to
FYE Dec FY10 FY11 FY12
79% in 1QFY10 vs. 70% in 4QFY09).
EPS chg (%) - - -
♦ No dividend declared, but LPI expected to remain generous. As Var to Cons (%) 4.7 5.7 n.a.

expected, LPI did not declare any dividend. However, we expect LPI to
remain generous with its dividends and project FY10-12 net DPS of 82-110 PE Band Chart
sen. This is based on a net payout ratio of 74% and translates to attractive
net dividend yields of 6-8%.
PER = 17x
♦ Risks: 1) change in government policy that may result in lower fire PER = 14x
PER = 11x
premium; 2) jump in claims ratio; 3) combined ratio may exceed 100%; and
4) intense competition from insurance sector liberalisation.

♦ Forecasts. We are leaving our earnings forecasts unchanged.

♦ Investment case. Even though other general insurers are suffering from Relative Performance To FBM KLCI
high claims ratio, LPI claims ratio remained well contained given its relatively
higher exposure to the fire insurance business, which has low claims ratio of
18%. We like the stock as it offers steady growth on the back of a healthy LPI Capital

premium mix that leads to a balanced expansion. In addition, LPI also

provides investors attractive dividend yields. Although the stock is illiquid,
we think it is suitable for investors who are more risk adverse and looking for FBM KLCI

steady income stream. Maintain Outperform call on the stock, with an

unchanged fair value of RM16.65 (based on 15x FY12/10 EPS).

Yap Huey Chiang

Please read important disclosures at the end of this report. (603) 92802171
yap.huey.chiang@rhb.com.my

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 12 April 2010

Table 2. Summary of Quarterly Results

FYE Dec (RMm) 1Q09 4Q09 1Q10 Qoq Yoy Comments
(%) (%)
Revenue 210.9 154.4 235.1 52.2 11.5 Higher yoy due to higher gross premium underwritten while the
strong qoq growth is mainly because 1Q tends to be a seasonally
stronger quarter.
Profit from gen ins 20.5 48.1 26.8 (44.3) 30.7 Lower qoq due to higher claims ratio.
Others 21.4 (1.6) 21.8 n.m. 2.1 Mainly relates to dividend income from Public Bank shares and
interest received from fixed income securities.
Associate 0.3 (0.0) 0.2 n.m. (45.0)
Pretax profit 42.2 46.5 48.8 5.0 15.6
Taxation (6.8) (11.5) (10.5) (9.0) 55.5
Tax rate (%) 16.0 24.8 21.5 (13.3) 34.5 Effective tax rate lower than statutory rate due to tax-exempt
dividends received and certain income (foreign investment),
which are taxed at a lower rate.
Net Profit 35.5 35.0 38.3 9.6 8.0
Source: Company

Table 3. General Insurance Quarterly Results

FYE Dec (RMm) 1Q09 4Q09 1Q10 Qoq Yoy Comments
(%) (%)
Surplus before 29.0 58.1 44.0 (24.3) 51.9 Lower qoq as higher gross premiums was offset by higher claims
management ratio. Higher yoy mainly due to higher gross premiums.
expenses
Management (18.6) (17.0) (22.5) 32.8 21.4
expense
Underwriting 10.4 41.1 21.5 (47.8) 106.4
surplus
Investment 9.4 4.4 4.8 7.5 (49.4)
income
Other income 0.7 2.6 0.6 (77.8) (18.5)
Transfer to P&L 20.5 48.1 26.8 (44.3) 30.7

Source: Company

Table 4: Earnings Forecast Table 5: Forecast Assumptions

FYE Dec (RMm) FY09 FY10f FY11f FY12f (%) FY10f FY11f FY12f
Premium growth 18.0 18.0 18.0
Turnover 738.3 874.3 1,022.0 1,206.0 Retention ratio 64.0 64.0 64.0
Premium 678.0 800.0 944.0 1,114.0 NEP/GWP 61.1 61.1 61.1
Invt inc 62.7 74.3 78.0 92.0 NEP/NWP 95.4 95.4 95.4
Claims ratio 47.0 47.0 47.0
Underwriting surplus 126.2 148.7 172.2 209.9 Commission ratio 9.2 9.2 9.2
Profit frm s/holders fund 34.2 47.8 50.5 53.2 Mgmt exp ratio 19.0 19.0 19.0
Associate 0.9 0.9 0.9 1.0 Total ratio 75.2 75.2 75.2
Invt return 2.2 2.2 2.2
Pretax 161.3 197.5 223.6 264.1 Source: Company, RHBRI estimates
Tax (35.2) (43.4) (49.2) (58.1)
Net 126.1 154.0 174.4 206.0
Source: Company, RHBRI estimates

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad

(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The

opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or

be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be

construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any

manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons

may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives

of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate

particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or

strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts

any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing

investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB

Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity

securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,

officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other

services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect

information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based

upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more

over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on

higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended

securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the

actions of third parties in this respect.

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