LPI Capital Berhad (LPI) has posted solid results for the first half of FY24, largely driven by reversals of previous flood reserves. The company's net profit for 1HFY24 reached RM179.3 million, accounting for 47% of the annual forecast and 50% of consensus estimates. An interim dividend of 30 sen per share aligns with expectations, with a potential full-year payout of 86 sen anticipated.

Analysts have reiterated their OUTPERFORM call for LPI, maintaining a target price of RM15.00. This recommendation is based on LPI's strong position in the competitive fire insurance sector, bolstered by its association with Public Bank and appealing dividend yield of approximately 6%. Despite pressures from the detariffication of fire insurance and a 23% quarter-on-quarter drop in 2QFY24 profits, LPI's overall performance remains robust.

The year-on-year increase in net earnings, up 30%, is attributed to the reversal of reinsurance reserves linked to past flood incidents. This has positively impacted LPI's fire insurance products and resulted in a retention ratio rise to 73.1%. However, sequentially softer dividend income and higher claims have led to a slight decline in net income when adjusting for dividend income.

LPI is expected to maintain its market share, thanks in part to its strong affiliation with Public Bank, which continues to expand its mortgage portfolio. The company's investment in its agency force and bancassurance networks also supports its long-term growth prospects. Although reinsurance reversals may normalise in FY25, LPI's steady growth and premium valuation are expected to sustain its performance.

The target price of RM15.00 is based on a price-to-book value (PBV) of 2.6x for FY25F, which is a 25% premium over the industry average of 2.1x. This valuation reflects LPI's superior net margins and higher dividend returns compared to industry peers. No adjustments have been made to the target price based on ESG considerations, with LPI holding a 3-star rating.