LPI earnings boosted by one-off investment gain

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File photo shows a sign of Lonpac Insurance Bhd’s in front of its office in Kuala Lumpur.

KUCHING: LPI Capital Bhd’s (LPI) earnings for the fourth quarter of 2014 (4Q14) and financial year 2014 (FY14) was boosted by a realised gain of RM60 million from a long-term equity investment.

For FY14, the company told Bursa Malaysia on Jan 28 that its net profit jumped 40.5 per cent year-on-year (y-o-y) to RM283 million while earnings for 4Q14 surged 123 per cent y-o-y to RM117.06 million despite a marginal increase in revenue of 1.5 per cent y-o-y to RM299.17 million.

RHB Research Institute Sdn Bhd (RHB Research) in a report yesterday said excluded the one-off realised gain in 4Q14, LPI’s core net profit for financial year 2014 (FY14) increased 11 per cent y-o-y to RM223.1 million.

The increase for the insurance company’s core net profit in FY14 was contributed by an improved profitable product mix and stable loss ratios across its business portfolio, it said.

Additionally, RHB Research noted that LPI’s underwriting margins in general insurance for its subsidiary, Lonpac Insurance Bhd (Lonpac) surged 120 basis points to 31.2 per cent from 30 per cent.

“More contributions from fire insurance premium which comprised of 38 per cent of Lonpac’s portfolio and sustained overall loss ratios have offset a lacklustre four per cent premium growth,” it added.

For FY14, LPI said its revenue grew 4.5 per cent to RM1.17 billion compared to RM1.12 billion in FY13.

Similarly, RHB Research noted Lonpac’s underwriting margins for fire improved to 80 per cent in FY14 against 73 per cent in FY13 as fire net claims ratio improved significantly to 14 per cent from 21 per cent in FY13.

Meanwhile, RHB Research said Lonpac has a combined 62 per cent exposure to fire and motor premiums.

Thus, the research firm added that given LPI’s above industry exposure to fire insurance, it estimates the gross claims exposure to the East Coast floods at about RM20 million.

Nonetheless, it expects the net impact for claims on flood on LPI’s earnings in FY15 to be minor in the range of two to three per cent as the company’s financials is well-covered by reinsurance and claims provisioning.

Going forward, RHB Research foresees lacklustre earnings growth prospects and dividend payments for the company in FY15 attributed to tougher operating environment ahead.

On the company’s recent one for two bonus issues, RHB Research said the announcement could spur short term positive sentiment on the company’s share price movement.Yesterday, LPI’s share price was among the top gainers in terms of value in the morning session of trading, up RM2.18. It closed yesterday at RM20.66 with 389,200 shares transacted.