MBSB (FV RM2.70 - BUY) Company Update: Firing up Its Earnings Growth Pace

Stock Name: MBSB
Company Name: MALAYSIA BUILDING SOCIETY BHD

Research House: OSK

Price Call: BUY

Target Price: 2.70

At MBSB's analyst briefing last Friday, management shedlight on its outlook and the group's business in 2012.  We  areoptimistic  that the group will  sustain its loans  growth while  maintaining  asset quality. All in all, we are maintainingour positive view on MBSB on the belief that its initiatives and business strategies will continue to deliversustainable  earnings  growth. Maintain BUY, with an unchanged fairvalue (FV) of RM2.70, premised on 2.6x FY12 PBV.

Reviving corporatelegacy loans. Media  reports lastweek said MBSB has signed an agreement for term and bridging financingfacilities of up to RM215m with NCT United Development SB (NCT) to revive thelargest abandoned housing project in Malaysia. The project, which is part ofMBSB's new recovery facility, is situated in Bandar Baru Salak Tinggi inSepang, Selangor. The reports added that management is determined to addressand resolve its corporate legacy accounts and is  looking to  improve its net impaired loans ratio by 2-3%from 8.5% as at Dec 11.

Getting more out ofexisting branches.  Besides expandingits branch network, management said the group will also focus on making furtheroperational improvements and increasing employee productivity to maximizeincome per branch. The group also intends to reinvent the image of its branchesto standardize their look and feel, a move we view as essential in enhancingits corporate image. The company also aims to beef up its fee-based income byintroducing more new products and fee-based income services at its branches.

Higher civil servicepay  to perk up earnings  later. The  Government recently abolishedthe New Remuneration Scheme for civil servants (SBPA) and  reintroduced the existing MalaysianRemuneration System (SSM) with some enhancements such as an effective 7  ' 13% pay hike. While we think that MBSB willbenefit from the  hike in civil servants'pay  as this increases the lattergroup's  disposable income, we do not expect  the group to register higher-than-expected loans growth in 1H11 as  the salary adjustments may take time toimplement. .

Maintain BUY. Wecontinue to like MBSB's strong fundamentals backed by its; i) strong assetquality, ii) innovative business strategies, and iii) sound management. Nonetheless,we maintain our earnings forecast for now as we have  incorporated the outcome of management's initiatives into our earnings assumptions.Maintain BUY, with an unchanged FV of RM2.70, premised on 2.6x FY12 PBV.

Source: OSK188