November 1, 2011

MBSB scaling new heights

Stock Name: MBSB
Company Name: MALAYSIA BUILDING SOCIETY BHD
Research House: OSKPrice Call: BUYTarget Price: 2.70



Malaysia Building Society Bhd
(Nov 1, RM1.78)
Maintain buy with a new fair value of RM2.70: MBSB group's earnings were ahead of consensus and our full-year forecasts by 16.2% and 16.4% respectively.

Net profit surged 81.4% year-on-year (y-o-y) boosted by: i) Islamic banking income soaring by a hefty 207% y-o-y, well supported by a 98% year-to-date (YTD) growth in personal loans for civil servants and ii) stronger other income (+71.8 y-o-y) arising from higher transaction and processing fees, which expanded in tandem with the enlarged loans base. Consequently, total income increased by 100.5% y-o-y.

The group's gross loans rose 22.5% YTD, translating into an annualised loans growth of 30%.

The main loans contributor, personal financing (PF-i), expanded by 98% YTD as MBSB provided PF-i to civil servants at more attractive terms including bundling it with will writing and takaful products.

However, mortgage and corporate loans contracted by 2.1% and 11.2% respectively due to aggressive industry competition.

Annualised deposits growth came in at 38.4%, which was higher than the industry average while the cost-to-income ratio (CIR) remained at a favourable 18.1% vs 25.9% 9MFY10 due to efficient cost control and a fast-growing top line. Meanwhile, net impaired loans trended lower to 11% from 16% in FY10.

Besides the retail segment, the company plans to grow its mortgage and corporate loans by launching new products and engaging agents to bring in new business.

It has opened one full-fledged branch and two new representative offices in Selangor, Johor and Perak to extend its network and expand its customer base.

We are tweaking up our FY11 and FY12 earnings by 13.6% and 5.1% respectively after taking into account the strong Islamic banking income from PF-i.

We maintain our 'buy' call on the stock, with a revised fair value of RM2.70 as we roll over our valuation from FY11 to FY12, based on 2.6 times FY12 price-to-book value (4% growth rate, cost of equity of 11% and returns on equity of 22.4%). ' OSK Research


This article appeared in The Edge Financial Daily, November 2, 2011.

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