Malaysia Building Society -
Excellent opportunity to buy
- We are maintaining our buy rating on Malaysia Building Society Bhd (MBSB), with a lower fair value of RM3.70/share (from RM3.90 previously) (cum basis) or RM2.23/share (from RM2.30) on ex-rights price basis. Our earnings forecasts and fair value already reflect a possible rights issue, and is fully diluted for the previous warrants issue in FY11. Based on a fullydiluted ROE (for previous warrants and potential imminent rights issue) of 20.0% (from 20.3% previously), we peg the fair P/BV at 1.99x (from 2.0x previously).
- Bank Negara’s latest measures to promote a sound household sector include limiting the maximum tenure of personal loans to a maximum of 10 years. Given the new measure, we now expect potential size of the overall market size to be reduced, to an estimated RM128bil, from up to RM191bil earlier.
- We estimate the current industry size at RM73bil, which means that the growth potential for the industry is still strong (from RM73bil currently to RM128bil). There will likely be a reduced amount of loan that borrowers could afford, but this will be offset by organic growths of new entry of civil servant force every year and salary increases.
- MBSB views the latest measures positively as these also apply to credit cooperatives regulated by Suruhanjaya Koperasi Malaysia. MBSB believes that this levels the playing field for all providers.
- We believe MBSB’s average tenure of personal loans is likely around 18 years. We acknowledge there may be some impact to loans growth for MBSB as there may be certain portion of borrowers which prefer to remain on longer-term tenured loans and not be refinanced on shorter-term tenured loans. In terms of personal loans growth, we have taken down our assumption to 40% (from 50%) FY13F and 35% (from 45%) FY14F.
- But, the latest rulings does not change MBSB’s business model, which is primarily high-margin and lowrisk business (given the direct salary deduction scheme), nor MBSB’s ability to compete, which it has done successfully in the past. The only remaining negative surprise may be a much slower-thananticipated personal loans growth, in which case, this is also likely to be balanced by a possibly much less dilutive rights issue. This is because MBSB’s CET1 is estimated to come in at a high level of 11.9% by endFY13F, post the rights issue.
- On the other hand, the other positives which are not priced in yet in our forecasts, is MBSB’s transformation into a full banking institution with ability to capture the low cost deposit segment. We maintain BUY on MBSB.
Publish date: 10/07/13