Malaysia Building Society: All is on Course

At MBSB’s analyst briefing yesterday, management shed light on its business outlook for the year. Overall, we remain positive on management’s strategic direction in enhancing growth while keeping asset quality intact. We maintain our earnings estimates as well as our FV unchanged at RM2.70, premised on 2.6x P/BV. Maintain BUY.

Short-term pain but long-term gain. We gather from management that the company’s fee-based income in 2Q12 will be similar to that in 1Q12 and would only normalize in 3Q12 as its current promotion transfer packages end this month. The company’s fee-based income plunged 57.0% y-o-y and 6.7% q-o-q as it has been absorbing the stamp duty, insurance and migration costs as part of the promotion. We understand that the promotional transfer packages are aimed at acquiring new customers by enticing them to repackage their loans with MBSB, which helps to enhance cross-selling opportunities. To date, MBSB has roped in 60,000-70,000 customers via this programme.

Asset quality intact. Management is targeting to reduce its net impaired loans ratio to 5.5%-6.5% due to a higher loan base and its efficiency in collecting defaulted loans. More importantly, we understand that the company will continue to recover its legacy loans by launching recovery programmes. Nonetheless, we do not think that the results of such efforts are likely to be apparent in the next two years as the tangible results can only be seen when the programme is completed.

Loan growth intact. We understand that MBSB’s sales YTD have been strong, with total gross disbursements of personal loan products hitting about RM2bn. The company is confident it will reach its targeted disbursement of personal loans worth RM8bn-RM9bn for FY12. We are maintaining our overall total loans growth of 24.5% for FY12, which is above the company’s target loans growth of around 20% for FY12. The company is also maintaining its net interest margin (NIM) target of 4% for FY12, which is also ahead of our forecast.

Maintain BUY. We continue to like MBSB’s diversification and innovativeness in growing its business moving forward. We are maintaining our BUY recommendation on the stock, with our FV unchanged at RM2.70. The stock’s key rerating catalysts include: i) higher-than-expected loans growth, ii) higher-than-expected ROE and NIM, and iii) continuous improvement in asset quality.

Source: OSK