Malaysia Building Society - An operationally stronger 1QFY12 HOLD

- We maintain HOLD on Malaysia Building Society Bhd (MBSB), with an unchanged fully-diluted fair value  of RM2.50/share. Our fair value is for ex-warrants. This is based on a estimated adjusted (for rights and warrants) FY12F ROE of 22.5%, leading to a fair P/BV of 2.3x.

- MBSB’s annualised net earnings came in 20.2% below our forecast and 16.8% below the consensus of RM382mil. The shortfall was mainly in the non-interest income line as well as loan loss provision. 

- Non-interest income if annualised was 39.9% below our estimate, with a 6.7% QoQ drop. The company said noninterest income was affected by higher promotional transfer fees. We believe this was related to refinancing of personal loans, which implies that MBSB continues to gain market share from competitors, which is positive. This also implies that the lower non-interest income is likely to be temporary. 

- Loan loss provision was higher by 30.6% QoQ, leading to an uptick in credit costs to 128bps in 1QFY12 from 105bps in 4QFY11. However, the uptick was mainly due to a higher collective assessment expense on account of a much stronger loan base. 

- Loans growth was robust at 13.9% QoQ in 1QFY12, significantly better than the flat 0.3% QoQ increase seen in 4QFY11. Annualised loans growth is at 55.7%, substantially higher than the company’s targeted 15% to 20% for FY12F, and our forecast of 17.4% FY12F. Personal loans was again the main driver with an accelerated growth of 27.6% QoQ in 1QFY12 (4QFY11: 10.4% QoQ). NIM surprised on the upside at 4.26% in 1QFY12, compared with the company’s guidance of 4.00% and our forecast of 3.79% FY12F. 

- Gross impaired loans recorded a 0.3% QoQ improvement. Coupled with the stronger loan base, the gross impaired loans ratio improved further to 15.4% in 1QFY12 from 17.6% in 4QFY11. Loan loss cover strengthened to 85.1% in 1QFY12 from 83.5% in 4QFY11. More importantly, the newly impaired loans trend looks benign, indicating stabilisation in MBSB’s older legacy loan portfolio.  

- 1QFY12 is operationally much stronger, given the better loans growth and NIM, while the lower fee income is likely to be temporary. Asset quality remains benign. We maintain our HOLD rating on the stock. 

Source: AmeSecurities