Stocks with Momentum: LPI Capital

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LPI Capital Bhd

LPI Capital Bhd (LPI) is one of Malaysia’s leading general insurance companies. It operates in three markets: in Malaysia and Singapore through its wholly-owned Lonpac Insurance Bhd and in Cambodia through its 45%-owned Campu Lonpac Insurance Plc. The company is majority owned by Tan Sri Teh Hong Piow, the chairman of Public Bank, and boasts a similar culture of prudent risk management. 

In 2013, LPI’s operating revenue hit RM1.11 billion. Net profit rose 20.7% to RM201.4 million, on the back of 6.2% growth in net premium earned of RM620.7 million. 

Between 2007 and 2013, LPI’s net profit grew from RM87.8 million to RM201.4 million, while total assets rose from RM792.4 million to RM3.2 billion. 

Lonpac’s Malaysian operations have fared well, despite increasing competition from large foreign competitors. In 2013, it had a lower combined ratio of 70.8% compared with the industry’s average of 88.9%. The net claims ratio was 45.5% versus the industry’s 58.7% average while gross written premiums grew 7.6%, slightly ahead of the 6.6% industry average.  

LPI currently derives 92% of its revenue from Malaysia. Looking forward, growth drivers include possible expansion into the local takaful business, and the Cambodian operations, where insurance penetration levels are low. However, the company also faces challenges in the ongoing liberalisation of Malaysia’s insurance industry, which has seen the entry of large foreign players. 

The stock is currently priced at 2.4 times its net asset value, which is higher than the industry average of roughly 1.8 times. As comparison, peers such as MNRB Holdings is trading at 0.73 times book while Syarikat Takaful Malaysia and Tune Ins are trading at 3.5 and 4.5 times their book values, respectively. 

This article first appeared in The Edge Financial Daily, on October 13, 2014.