MBSB (FV RM2.70 - BUY) Company Update: Firing up Its Earnings Growth Pace

At MBSB’s analyst briefing last Friday, management shed light on its outlook and the group’s business in 2012.  We  are optimistic  that the group will  sustain its loans  growth  while  maintaining  asset quality. All in all, we are maintaining our positive view on MBSB on the belief that  its initiatives and business strategies will continue to deliver sustainable  earnings  growth. Maintain BUY, with an unchanged fair value (FV) of RM2.70, premised on 2.6x FY12 PBV.

Reviving corporate legacy loans. Media  reports last week said MBSB has signed an agreement for term and bridging financing facilities of up to RM215m with NCT United Development SB (NCT) to revive the largest abandoned housing project in Malaysia. The project, which is part of MBSB’s new recovery facility, is situated in Bandar Baru Salak Tinggi in Sepang, Selangor. The reports added that management is determined to address and resolve its corporate legacy accounts and  is  looking to  improve its net impaired loans ratio by 2-3% from 8.5% as at Dec 11.

Getting more out of existing branches.  Besides expanding its branch network, management said the group will also focus on making further operational improvements and increasing employee productivity to maximize income per branch. The group also intends to reinvent the image of its branches to standardize their look and feel, a move we view as essential in enhancing its corporate image. The company also aims to beef up its fee-based income by introducing more new products and fee-based income services at its branches.

Higher civil service pay  to perk up earnings  later.  The  Government recently abolished the New Remuneration Scheme for civil servants (SBPA) and  reintroduced the existing Malaysian Remuneration System (SSM) with some enhancements such as an effective 7  – 13% pay hike. While we think that MBSB will benefit from the  hike in civil servants’ pay  as this increases the latter group’s  disposable income, we do not expect  the group to  register higher-than-expected loans growth in 1H11 as  the salary adjustments may take time to implement. .

Maintain BUY. We continue to like MBSB’s strong fundamentals backed by its; i) strong asset quality, ii) innovative business strategies, and iii) sound management. Nonetheless, we maintain our earnings forecast for now as we have  incorporated  the outcome of management’s initiatives into our earnings assumptions. Maintain BUY, with an unchanged FV of RM2.70, premised on 2.6x FY12 PBV.

Source: OSK188