Company Name: MALAYSIA BUILDING SOCIETY BHD
Research House: AMMB
Malaysia Building Society Bhd
(May 12, RM1.48)
Maintain buy at RM1.44 with fair value of RM2.20 (ex-rights): We are maintaining 'buy' on Malaysia Building Society Bhd (MBSB) with an unchanged fair value of RM2.20 (ex-rights). This is based on our rights-adjusted FY11F return on equity (ROE) of 20.5% and fair price-to-book value (P/BV) of 2.6 times.
MBSB recorded super strong 1QFY11 net earnings of RM68.3 million. Annualised net earnings would be RM273 million, way exceeding our forecast of RM195 million by 40.3%.
Gross loans grew at a sizzling annualised pace of 40%, substantially above our projected overall loans growth of 18.3% for FY11F. There was no further breakdown of loans, but we believe the bulk of the growth came from the personal financing segment.
Net interest margin (NIM) is estimated to have registered a big spike upwards to 4.68% in 1QFY11 (+125 basis points quarter-on-quarter), again coming in above our estimated 2.91% for FY11F. We believe this was contributed by the higher-yielding personal loan segment.
Non-interest income is the next positive surprise, more than tripling q-o-q and 174% year-on-year to RM65 million in 1QFY11. We believe these were fees relating to its personal loans segment.
MBSB's share price had been affected by negative sentiment since its ex-date because the share price was adjusted assuming all warrants were fully converted. Therefore, instead of RM1.90, the reference opening price for MBSB was pegged at RM1.63 per share.
Since then, we believe there has been a negative perception of the company's inability to react to the unexpected ex-price adjustment.
Given that 1Q results are much stronger than expected, we will be reviewing our forecasts and fair value later with an upward bias.
Thus, the current poor sentiment on the stock represents an excellent opportunity to buy. The stock is now trading at P/BV of only 1.7 times, with a sustainable ROE of above 20% per year. Based on a dividend payout policy of 30%, the gross dividend per share yield is now at least 4.5% FY11F.
Rerating catalysts for the stock are: (i) higher-than-expected loans growth; (ii) better-than-expected NIM; (iii) continuing improvement in impaired loans; (iv) sustainably high ROE in excess of 20%; and (v) confirmation of dividend payout ratio of at least 30%. ' AmResearch, May 12
This article appeared in The Edge Financial Daily, May 13, 2011.