MBSB’s delivery channels seen to help new customer acquisition

Malaysia Building Society Bhd (Feb 2, RM1.24)

Maintain buy with a target price (TP) of RM1.50: The Malaysia Building Society Bhd (MBSB) recorded a financial year 2017 (FY17) net profit to the tune of RM417.1 million. The results came in above our and consensus expectations, accounting for 106.5% and 119.5% of full-year estimates. Cumulatively, the group’s net earnings grew by a whopping +107.1% year-on-year (y-o-y).

The strong earnings growth was due to lower allowance for impairment losses on financing/loans and advances. It declined by -23% y-o-y for FY17, with the fourth quarter of FY17 (4QFY17) following the same pattern of previous quarters, decreasing by -35.2% y-o-y. On the operational front, lower cost of funds has steered the net interest income higher.

The group’s cost-to-income ratio in 4QFY17 stood at 22.6%, showing marginal increase from the corresponding period at 20.8%. This was due to the necessary merger expenses and the expansion of business products and segments. Nonetheless, we opine the level as healthy, in comparison to the industry’s average of 49.7%. Meanwhile, the group’s FY17 asset quality as measured by Net Impaired Financing/Loans (NIFL) improved by 0.76 percentage points (ppts) y-o-y to 2.87%.

MBSB has proposed a single-tier final dividend of 5 sen per share, which amounts to RM296.2 million. This implies a pay-out ratio of about 70% of its FY17 earnings and a dividend yield of 4.3%.

Although the results came in above our expectations, we are maintaining our FY18 forecast as we have taken into account the reduction of impairment allowance as well as improving net income. We introduce our FY19 earnings forecast, which will reflect MBSB’s full-year earnings projection as a full-fledged Islamic banking institution.

We remain optimistic about the group’s performance moving forward, supported by the current and future initiatives being planned and executed. On the group’s outlook, we are positive on the group’s creation of delivery channels, which will help in new customer acquisition as well as driving down operational expenses. Given this optimistic stance, we maintain our “buy” call on the stock with a TP of RM1.50. This is pegging its FY18 book value per share (BVPS) at price-to-book value (PBV) of 1.1 times. — MIDF Research, Feb 2

This article first appeared in The Edge Financial Daily, on Feb 5, 2018.

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