MBSB - OUTPERFORM - 14 JUNE 2012

MBSB held an analyst briefing yesterday chaired by its CEO Dato Ahmad Zaini Othman. We are convinced that the group has successfully expanded its balance sheet despite a lower non-interest income on promotion in the quarter. Post briefing, we are reiterating our OUTPERFORM rating  on MBSB with an unchanged target price RM2.70.

1Q12 review.  Recall that MBSB reported 1QFY12 net profit of RM79.4m (18% of our estimate and 20% that of the consensus). The lower than expected number was due to a lower fee-based income on promotion of the transfer package. During the briefing, we understand that the group had adopted a tactical strategy in the 1Q with a zero-transfer promotion campaign in its efforts to grow its loans.  Accordingly, RM1.0b/month of PFI loans were disbursed in 1Q and adding in a total of 40k new clients. The group fee-based income fell due to the promotion transfer packages, which helped in subsidising insurance fee, stamp duty and migration cost from customers. 

2012 outlook. The PF-I promotion transfer package has ended in April 2012. We expect the group’s loan disbursement to thereafter normalise in the range of RM500m-RM600m a month with a rate of 4.3% (vs. 3.99% during the campaign).  We also expect the group’s fee-based income to normalise for the remaining year as it would be longer subsidised on the transaction fees.

The group’s main strategy for the remainder of the year is to build its assets by continuing profitable programmes like hire-purchase loans, where the group has targeted potential clients from Klang Valley area. Thus far, hirepurchase loans accounted for less than 1% of its total RM20.2b gross loans vis-à-vis the industry average of 14.1%. While we believe hire-purchase loans could be a new growth driver, the main driver to achieve the group’s targeted loan growth will be personal loans financing. Besides, a total of

RM1.7b of loans approval and those undisbursed from the corporate segment will further support the group to achieve its full-year loans disbursement target of RM8.0b in FY12. This could largely indicate a possible higher loan growth in the upcoming quarter.  Its net NPL ratio meanwhile has improved from 8.5% in 4Q11  to 7.3% in 1Q12. The group is looking to further shave its net NPL ratio to 5% this year by refinancing two legacy loans that are expected to be written back. The first project to be written back will be the Taman Kenanga project, which is expected to be re-launched in September 2012 while the other project is a debt settlement agreement of RM120m to revive and complete the Pantai Plaza project in Bangsar.

OUTPERFORM maintained.  We are maintaining our target price of RM2.70 based on a targeted P/BV of 1.6x over FY13 BV of RM1.70. Our target price of RM2.70 also implies 7.1x and 6.0x to its FY12 EPS and FY13 EPS, respectively. At the current level, the stock  offers potential capital upside of 21%. Coupled with an additional dividend  yield of 2.5%, which brings the potential total return to 23% over the next 12 months.  Its ROE of 28.1% remains one of the highest among the financial stocks. 

Risk.  The group believes that the upcoming months will be more challenging due to the concerns in the Eurozone. The main challenge from the Eurozone will be the liquidity issue of the group. However, the group is well consolidated and we expect the civil service business to maintain its stable employment status.  

Source: AmeSecurities