LPI- a good long-term BUY

Background

LPI Capital Bhd ('LPI') is an investment holding company, with its main subsidiary, Lonpac Insurance Bhd involved in underwriting of general insurance business. Its insurance business is carried out through 14 branches in Malaysia and a foreign branch in Singapore.

The main shareholder of LPI is Tan Sri Teh Hong Piow, who hold 44.4%-stake in the company. As Tan Sri Teh Hong Piow is also the main shareholder of Public Bank, we can expect that a substantial portion of LPI's business could be referred by Public Bank.

Recent Financial Results

LPI has just announced its results for 1Q2009 ended 31/3/2009. Its net profit increased by 29.4% y-o-y from RM27.4 million to RM35.5 million, while turnover increased by 13.7% from RM186 million to RM211 million.


Note: LPI's Net Assets per share had jumped as at 31/3/2009 due to the adoption of FRS139, which deals with the measurement of financial assets. The change in accounting standard gave rise to a fair value reserve of RM377 million, which was taken up during that period.

LPI's results for 1st quarter normally shows a rebound after a drop in the preceding 4th quarter. In fact, if we combined the 1st quarter's results with the preceding 4th quarter's results as well as the the 3rd quarter's results with the preceding 2nd quarter's results (se the table below), a clearer picture of LPI's performance can be seen. You will note that LPI has been growing in term of both top-line & bottom-line for the past 3 years.



Valuation

Based on the last 4 quarters' EPS of 82 sen, LPI (traded at RM9.35 as at 10.15 am today) is now trading at a PE multiple of 11.4 times. At this multiple, LPI is deemed attractive given its steady growth track record.

Technical Outlook

LPI has been in a steady uptrend since recovering from the low of RM1.48 recorded during the Asian Financial Crisis. That uptrend has accelerated steadily- from SS to S1S1 and then to S2S2. Finally, in the midst of another financial crisis, LPI's share price corrected. In September last year, LPI broke below its uptrend line, S2S2. It found support at the horizontal line of RM8.50 and started to recover.


Chart: LPI's monthly chart as at 8/4/2009 (Source: Quickcharts)

Conclusion

Based on attractive value, LPI could be a good BUY for long-term investment. Good entry level is about RM8.50.