Malaysia Building Society - Highlights from the analyst briefing

Malaysia Building Society Bhd (MBSB) hosted an analyst briefing yesterday in conjunction with the release  of its 4Q12 results. The group explained the reasons behind its lower loan loss provision in 4Q12 as well as the special dividend payout of 13.5 sen. For FY13, management is targeting a loans growth of 20%-25% and expects the net interest margin to be sustained at c.4%. We have made changes to our estimates accordingly and forecast FY13-14 EPS of 42 sen and 56 sen respectively. The group has a low 6.3% core capital ratio as at end-December 2012. As such, we believe a new capital management plan is needed to continue to support the group’s high balance sheet growth for 2013, which should include possible capital raising exercises and a dividend reinvestment plan. Management has disclosed that they will announce the plan by the end of March or early April 2013.

Lower loan loss provision in 4Q12.  According to MBSB, the allowance for impairment losses on loans at the end of the quarter was lower by 80% QoQ and 76% YoY at RM11.5m due to the effect of a one-off write back of about RM40m-RM45m. This was because the group had overprovided for its legacy mortgage loans earlier. 

Special dividend payout explained. In its FY12 results announcement, MBSB proposed a special dividend of 18% less 25% tax (net DPS: 13.5 sen). The special dividend is franked by the group’s unutilised tax credit balances (under Section 108) which will expire on 31 Dec 2013. We expect MBSB to dish out more special payouts in 2013 in order to utilise its remaining Section 108 balances. However, there could be a risk of dilution due to the conversion of warrants by the major shareholders.  

Management is targeting loans growth of 21% and NIM of 4%. Net loans in FY12 grew by 60% YoY to RM24.2b led by the increase in PF-i loans, followed by mortgage, corporate and auto financing. For FY13-14, we have assumed loans growth of 21% based on management’s guidance of 20%-25%. Meanwhile, MBSB expects its net interest margin (NIM) to be maintained at c.4%. However, going forward, we reckon that the NIM is likely to compress further due to intensifying competition. Hence, we are estimating a flattish growth in the NIM at 4.04% and 4.06% for FY13 and FY14 respectively. 

Capital raising exercise is imminent.  In our opinion, MBSB’s balance sheet expansion story remains intact. The group, however, needs a new capital management plan to address its relatively low core capital ratio of 6.3% as at end-December 2012. Management has indicated a possible capital raising exercise of c.RM3b-RM4b (to be done in stages), which may involve a rights issue and a dividend reinvestment plan (DRP). The group’s shareholders fund is expected to increase by RM500m to RM2b under such an exercise in order to meet the BASEL III’s minimum capital requirement. Further details on the proposed exercise are slated to be revealed at the end of March or early April 2013.    

Revised earnings forecasts but maintaining our TP. We have revised upwards our FY13 EPS by 12% to 42 sen and assumed FY14 EPS to grow by 20% to 50 sen. However, we are keeping our target price of RM2.70 based on 1.7x (previously 1.6x) FY13 BV for now pending further details on the capital raising exercise. Maintain Outperform rating.    

Source: Kenanga