Malaysia Building Society - Strong operating trend sustained in 3Q HOLD

- We maintain HOLD on Malaysia Building Society Bhd (MBSB), with a revised fully-diluted fair value of RM2.40/share (vs. RM2.60/share previously). Our fair value is for ex-warrants. This is based on an estimated adjusted (for rights and warrants) FY12F ROE of 21.4% (previously 22.5%), leading to a fair P/BV of 2.2x  (from 2.3x).

- MBSB reported net earnings of RM90.0mil in 3QFY12, or a -3.9% QoQ decline, mainly due to much a higher-thanexpected tax rate. This came mainly from an under- provisions of RM22mil related to non-allowable items in the prior year. Thus, net earnings if annualised were 11.4% below our forecast and 10.4% below consensus’RM394mil FY12F. Excluding the tax impact, annualised earnings are in line with our forecasts. 

- The company clarified that the non-allowable items were mainly related to collective assessment expenses. These were allowed as deductible expenses for financial institutions, but as MBSB is not yet classified as  a financial institution, it has made a provision relating to this for the amount not deductible year-to-date.

- Loans growth was at 4.6% QoQ in 3QFY12 (2QFY12: 21.7% QoQ). Annualised loans growth was at 74.5% in 3QFY12, thus coming in above the company’s target of 15% to 20% for FY12F and our forecast of 17.4% FY12F. 

- NIM was 17bps higher in 3QFY12, following an already robust 34bps QoQ increase in 2QFY12. The higher NIM was attributed to higher contributions from betteryielding corporate loans.  9MFY12’s NIM of 4.65% is well above the company’s earlier target of 4.00%.

- Gross impaired loans has now dropped below the RM3bil level, improving to RM2,822mil in 3QFY12’s from RM3,050mil in 2QFY12. Gross impaired loans ratio has fallen further, to 10.9% in 3QFY12, (2QFY12: 12.4%).  Loan loss cover strengthened further to 93.9% in 3QFY12 (2QFY12: 90.1%).

- 3QFY12 indicated a strong operating trend for its loans, NIM and asset quality. This was offset by the unexpectedly high effective tax rate. Looking ahead, the company expects an average effective tax rate of around 30% for the remainder of the year. We have therefore revised downwards our earnings by 6% for FY12F to take into account the adjustment in tax. Our net earnings for FY12F are now at RM376mil, revised from RM398mil previously.  

Source: AmeSecurities