Malaysia Building Society -
Target Price: MYR3.10
Diversification Bears Fruit
We upgrade MBSB to BUY on account of our positive outlook on the revival in its corporate loan book momentum and well controlled expense ratio. These factors should mitigate the more muted potential of its retail portfolio and personal financing (PF) business. This has been priced in as the stock price has shed 10% in the past 3 months. Our new MYR3.40 FV implies an ex-rights FV of MYR3.10.
- More corporate deals to come. We are positive on the momentum of MBSB’s corporate business, supported by an enhanced business team. This will help mitigate the growth moderation in its retail portfolio. The company disbursed some MYR0.5bn in syndicated loans for purposes that include infrastructure projects. Its corporate projects, of which many are with reputable property developers, is gaining momentum, having disbursed about MYR0.8bn YTD. This was originally MBSB’s bread-and-butter business since incorporation. It is aiming for a 60:20:20 ratio for its PF:mortgage:corporate portfolio vs the current 72:16:12.
- Synergies will flow to fee income and deposits. While corporate loans garner lower yields vis-à-vis personal financing (PF), this segment’s growth may provide more avenues to boost fee income and deposits. This trend is line with our forecast of a higher FY14F fee income growth (+90.4%) and our expectations of a higher 2-year forward deposit CAGR (+26.9%) vs that for its financing portfolio (+20.7%). This was evidenced in the company’s latest 3Q13 results.
- Raising loans growth, lower cost-to-income ratio (CIR). We are raising our FY13F/FY14F loans growth targets to 24.4%/17.2% from 22.4%/16.1% due to a higher portion of corporate loans. However, for the same reason, we are lowering our net interest income forecasts owing to lower NIM estimates and a reduced proportion of PF. We also lower our FY13F/FY14F CIR assumptions to 20.3%/19.8% from 24.8%/26.3% as MBSB has been able to rein in expenses. The net effect is a 3.4%/7.2% upward revision in FY13F/FY14F net profits. (Please see Page 2 for further details).
- BUY, on renewed diversification efforts. We upgrade our call to BUY (from NEUTRAL), with our FV raised to MYR3.40 (from MYR3.10), pegged to 2.2x FY14F P/BV (3.0% growth, 14.3% COE, 27.2% ROE). Our ex-rights FV is also adjusted to MYR3.10 from MYR2.92.
Publish date: 23/10/13