Malaysia Building Society - Unlocking value from Johor property

HOLD
Fair Value RM2.60

Investment Highlights

• We maintain HOLD on Malaysia Building Society Bhd (MBSB), with a slightly higher fully-diluted fair value of RM2.60 (from RM2.50 previously). Our fair value is on a fully-diluted basis, assuming full conversion of its outstanding warrants. The change to our fair value came from upgrade to our forecast book value for FY12F, which is now revised upwards to RM1.14, from RM1.11 previously. Our fair value is based on unchanged estimated adjusted (for rights and warrants) FY12F core ROE of 22.5%, leading to an unchanged fair P/BV of 2.3x. 
• MBSB announced that it has sold a plot of freehold commercial land together with abandoned shop mall comprising a 4 level retail podium block and 2 levels of car park in Mukim of Tebrau, Johor. 
• The sale consideration is RM180mil and the buyer is WCT Bhd (WCT). The property’s net book value currently is RM124.6mil. The property was acquired by MBSB as foreclosed property pursuant to a Scheme of Arrangement of its borrower, with the related Court Order dated 5 December 2011. MBSB said Messrs Jordan Lee & Jaafar on 15 February 2012, ascribed an open market value of RM160mil to the property. 
• The proposed disposal is expected to result in a gain on disposal at MBSB of RM55mil. This adds RM0.03 or 2.7% to our previous forecast of fully diluted (for warrants) book value of RM1.11 for FY12F. 
• We have revised upwards our net earnings by RM55mil or 14% to RM454mil (from RM398mil previously) for FY12F, to account for the extraordinary gain. This is in line with MBSB’s indications previously that any gains from disposal of non-core assets is considered as an extra profit, which is not yet included in its core pre-tax profit target of RM500mil (or indicative net earnings target of RM375mil assuming 25% corporate tax rate). 
• The contract for the disposal of the property was awarded by way of public tender. The tender was advertised on 16 April 2012 in the News Straits Times at a reserve price of RM160.0mil. The tender was closed on 22 June 2012. Two tenders were received for the purchase of the said property. The value of the other bid was RM89mil. 
• We are positive on the news as this indicates further good progress by MBSB in resolving its legacy impaired loans issues, as well as unlocking value from the underlying collateral backing to these loans. In addition, the sale has now generated additional bonus in terms of extraordinary gain for this year. We expect MBSB’s share price to be boosted by this news.

Source: AmeSecurities