Malaysia Building Society - Building a strong base in 1HFY12 Hold

- We maintain HOLD on Malaysia Building Society Bhd (MBSB), with an unchanged fully-diluted fair value  of RM2.60/share. Our fair value is for ex-warrants. This is based on an estimated adjusted (for rights and warrants) FY12F ROE of 22.5%, leading to a fair P/BV of 2.3x.

- MBSB recorded a commendable 17.9% QoQ increase in net earnings to RM93.7mil in 2QFY12, from 1QFY12’s RM79.4mil. The bulk of the increase came from a strong 25.1% QoQ increase in net interest income. 

- Annualised net earnings were 9.5% below our core net earnings forecast (excluding the RM55mil one-off gain from sale of Johor property which was recently announced) and 5.6% below consensus earnings. However, the lower-than-expected net earnings were again largely due to the non-interest income line, which continued to be affected temporarily by promotional transfer fees relating to its free-transfer personal financing product. Given that the promotion period ended in June 2012, we expect the effect on non-interest income to dissipate in 2H. 

- Loans growth accelerated to 21.7% QoQ in 2QFY12, from 13.9% QoQ in 1QFY12. This means a super-strong annualised loans growth rate of 77.3% in 2QFY12, higher than the already robust 55.0% growth rate in 1QFY12. Loans growth is thus much higher than the company’s target of 15% to 20%, and our forecast of 17.4% FY12F. 

- Net interest margin (NIM) expanded by another robust 34bps QoQ. 1HFY12’s NIM is estimated at 4.42%, muchhigher than the company’s guidance of 4.00% for FY12F.  

- Gross impaired loans came in marginally better, given a 0.2% QoQ decline in the absolute balance. Gross impaired loans ratio is now much lower, at 12.4% in 2QFY12, against 15.4% in 1QFY12, with improvement from recoveries and a higher loan base.  Loan loss cover has now climbed above 90%, to 90.1% in 2QFY12 (1QFY12: 85.1%). Credit cost was higher at 150bps in 2QFY12, compared with 128bps in 1QFY12, but this was mainly due to higher collective assessment charge on account of the strong loan growth. 

- 2QFY12 turned out to be much stronger than expected in terms of loans growth, NIM and good asset quality trend. We view the 1HFY12 results as forming a strong base for 2H. Thus, we expect MBSB’s share price to be sustained.  

Source: AmeSecurities