Malaysia Building Society -
Tapping Into Private Sector Financing
The company’s 1HFY13 core profit of MYR330.8m exceeded expectations. The near two-fold surge in core profit was mainly boosted by improvements in personal financing (PF-i) and NIMs. We lift our FY13/14 EPS forecasts by 10%/13% on renewed confidence in the company’s strategy. Upgrade to BUY, with our FV revised to MYR3.70.
- Profit nearly doubles. Malaysian Building Society (MBSB)’s 1HFY13 earnings made up 57% of our and 58% of consensus’ FY13 forecasts respectively. The group’s core earnings growth (+93.6% y-o-y, -0.9% q-o-q) trounced its pre-provision operating profit (PPOP) growth (+20.6% y-o-y, 19.0% q-o-q), thanks to a 51.4% y-o-y drop in loan loss provision (LLP)). Interest income from Islamic financing surged 81.2% y-o-y on increased PF-i volume, and a 4.4% rise in net interest margins (NIMs).
- No blip in loans growth despite tightening measures. Gross loans jumped 28.1% y-o-y and 8.8% q-o-q as the PF-i segment expanded 46.1% y-o-y and 13.1% q-o-q. PF-i now comprises 72% of MBSB’ loans book. 1H net loans chalked up a robust 20.3% growth in the absence of cooling measures. (Bank Negara’s curbs on household debt only took place in July.) YTD, the group has disbursed loans totaling about MYR9.8bn vs the FY13 target of MYR14bn and FY12’s MYR12bn.
- Rolling out strategies. The company is in the midst of: (i) venturing into private sector PF-i, (ii) offering floating-rate loans for the mortgages and PF-i segments, and (iii) securing more mandates for corporate segment financing. The PF-i segment will remain its biggest growth driver given the huge potential in the private sector market, although the competition and risks are equally significant. Although MBSB has not provided guidance on its new growth targets or their timeline, we are still reassured by the company’s new strategies. Thus we upgrade our FY13/14 loans growth to 29%/15% respectively (please see Page 7).
- Lifting FV to MYR3.70. We upgrade our FY13/FY14 earnings forecasts by 10%/13%. While waiting for the group’s strategies to unfold, we upgrade the stock to BUY, with a new MYR3.70 FV (from MYR3.10). Our new assumption is premised on 2.3x FY14 P/BV (3% growth rate, COE of 13% and ROE of 27.4%) vs our previous 24.8% ROE. MBSB’s annualized FY13 ROE of 38% was significantly above its 15% target. No dividends were declared for this quarter.
Publish date: 01/08/13