KUALA LUMPUR (April 30): Shares of LPI Capital Bhd on Tuesday (April 30) extended their gain after the general insurer posted better-than-expected results.

LPI rose as much as 12 sen to RM12.08 in the early trade on Tuesday. At noon trading break, the stock was trading at RM11.96, still up 0.5% or four sen, valuing the company founded by the late Tan Sri Dr Teh Hong Piow of Public Bank Bhd at RM4.76 billion.

The growth of LPI’s gross written premiums was “impressive” at 8.7% year-on-year, said Affin Hwang Investment Bank, which “reinforces our view that the industry is seeing a boost” from the ongoing construction projects, new approved investments and resilient domestic demand for motor vehicles.

Affin Hwang is one of only two with "buy" calls on LPI out of five research houses covering the stock, while three others have "hold" recommendations. The consensus 12-month target price is RM13.20, according to Bloomberg.

LPI posted on Monday a net profit of RM101.29 million in the first quarter of 2024, accounting for 30% of consensus full-year estimates for the company that mainly sells motor and fire insurance.

Kenanga Investment Bank, which maintained its "outperform" call on LPI, raised its earnings for LPI by 13% for FY2024 and 4% for FY2025. The research house is betting that LPI will maintain its leading position in the market due to its close affiliation with Public Bank, supported by resilient mortgage demand.

“We see that there could be more intensive competition, especially in the fire class insurance segment, but we are not overly deterred by LPI’s position, thanks to their backing from a leading bank,” Kenanga said.

Coverage for motor vehicles is mandatory in Malaysia and accounts for a large chunk of the insurance market. However, regulators have been liberalising the industry that commonly charges fixed premiums in a move called detariffication to allow insurers to price their coverage based on risk behaviours.

“Margin compression is expected to continue going forward due to the continued liberalisation of fire and motor segments in phases,” said AmInvestment Bank, which has the stock on "hold" rating.

Competition in pricing on fire insurance has yet to abate and challenges remain on the underwriting margin of LPI for this segment, the research house flagged. Claims for fire and medical classes of business are expected to stay elevated, it added.

Affin and AmInvestment said they are keeping their forecasts pending analyst briefings later.

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