LPI: Bumper Profit from Sale of PBBank Shares

Result Update

For QE30/6/2016, LPI's net profit rose by 225% q-o-q or 148% y-o-y to RM213 million while revenue rose 6% q-o-q or 11% y-o-y to RM339 million. Profits increased substantially due  to both realized  gain  of RM150.4 million on  disposal  of  investment  in  quoted  equities as  well  as  better  underwriting experience.


Table 1: LPIs last 8 quarterly results

For the past 2 years, LPI's earnings had been erratic due to realized gain from the disposal of quoted securities, mainly PBBank shares. I have presented below, the unadjusted (in pink) & adjusted earnings (in yellow) to show the performance of the company. The adjusted earnings exclude the gain on disposal of investment in equities - which yielded huge gain in QE30/6/2016, QE30/6/2015 & QE31/12/2014 of RM150.4 million, RM39.2 million & RM59.9 million respectively. After the adjustment, we can see that LPI's net profit margin is steady at around 20%. 


Chart 1: LPI's last 42 quarterly results

From the increased earnings, LPI has increased its dividend payment gradually since 2014. Based on dividend of 75 sen in the past 4 quarters, LPI's dividend yield is about 4.6%. With its holding of 42.5 million PBBank shares today (valued at RM811 million), LPI can continue to book in the unrealized profit of this investment and keep up its dividend payment. 


Chart 2: LPI's dividend for last 42 quarterly results


Table 2: LPI's holding of PBBank shares
 
Valuation

LPI (closed at RM16.14 yesterday) is now trading at a trailing PE of 12 times (based on last 4 quarters' EPS of 137.38 sen) or 20 times (based on last 4 quarters' EPS [excl. gains on disposal of quoted shares] of 81 sen). Compared to the adjusted earnings growth of 19% for the last 4 quarters, the adjusted PER of 20 times will give a PEG ratio of 1.05 times. Thus LPI appears to be fairly valued.

Technical Outlook

LPI is in a long-term uptrend, with support from the 10-month SMA line at RM15.50.


Chart 3: LPI's monthly chart as at July 11, 2016 (Source: ShareInvestor.com)

 Conclusion

Based on good financial performance, fair valuation & positive technical outlook, LPI is still a good stock for long-term investment. Rating downgraded one notch to BUY ON WEAKNESS.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, LPI.