Possible windfall for LPI Capital shareholders

PETALING JAYA: Shareholders of LPI Capital Bhd might be able to look forward to special dividend yields of up to 18% should the proceeds from the upcoming sale of its stake in Public Bank Bhd are fully returned to them, says Kenanga Research.

In accordance with the Companies Act, LPI is required to dispose of its 1.1% stake in Public Bank shares held within 12 months of the completion of the bank’s acquisition of a 44.2% stake in LPI Capital in December 2024, as it is now classified as a subsidiary.

Kenanga Research said, based on Public Bank’s closing price of RM4.40 per share on Feb 4, the 1.1% stake was valued at RM940mil, equivalent to 15 days of average daily traded value for Public Bank shares.

“Between reinvesting the proceeds and returning it to shareholders, applying LPI’s average historical payout ratio of 80% hypothetically translates to RM1.89 per LPI share in special dividends or 14.7% in additional yields.

“On the further end, a full payout equates to RM2.36 per LPI share, or 18.4% in additional yields,” the research house added.

Kenanga Research said that, following a meeting with LPI, the group had yet to reach a decision on the utilisation of the proceeds.

However, Kenanga Research ruled out the likelihood of the proceeds being used for acquisitions given LPI Capital’s subsidiary Lonpac Insurance Bhd has a stellar return on equity of 22.5%, which is far superior compared with the 2023 weighted industry average of 11%.

This being the case, any potential acquisition would more likely be dilutive to the group.

The research house added that synergies between Public Bank and Lonpac Insurance will materialise progressively as they assess cross-selling opportunities.

This would entail collaborative opportunities between Lonpac Insurance’s active agent network and 21 branches alongside Public Bank’s wider branch footprint, where the sharing of some services could also be optimised.

Lonpac Insurance has already identified Public Bank’s hire purchase and marine-based segments to be areas for potential cross-selling.

Even as its synergies with Public Bank take shape, LPI may see a better financial performance this year as previous pains from flood-related claims are not likely to reoccur given lower underwriting exposure.

“In the meantime, the group looks to contain its exposure in medical insurance amid tighter premium adjustments,” Kenanga Research also said.

The research house pointed out that in the first quarter of 2022 (1Q22), LPI saw a 14% year-on-year decline in net earned premiums attributed to adjustments to provisions to reinsurance arising from floods in the Klang Valley in the 4Q21.

“While we think that the flooding in 4Q24 appears more severe, the group indicated that a smaller impact is expected in 1Q25 as their underwritten policies on industrial assets were less exposed,” the research house added.

Kenanga Research has maintained its “outperform” call on LPI Capital with a target price of RM15 following the meeting. The target price was based on an unchanged 2.6 times 2025 price-to-book value.

“This represents a 25% premium against the industry average of 2.1 times which we believe is fair given its better net margins of 17% versus its peers’ 11%,” the research house said.

The research house added that it had also factored in LPI’s higher dividend returns of 6% to 7% versus the 4% to 5% of its peers.

LPI’s premium valuation may also be supported by the long-term opportunities its affiliation with Public Bank provides with the pending acquisition solidifying synergies.

LPI shares closed 4.21% higher at RM13.36 yesterday, giving the group a market capitalisation of RM5.34bil.