Investment Highlights

• We maintain our BUY call on Malaysia Building Society Bhd (MBSB) with a lower fair value of RM1.24/share from RM1.27/share. Valuation remains undemanding with the stock trading at 0.8x to our FY19 BV/share. Our fair value is based on an ROE of 8.3%, leading to a P/BV of 1.0x. We tweak our FY19/20 earnings estimate by -7.7%/-5.1% as we fine-tune our projections for total income.

• The group reported a softer 4QFY18 net profit of RM118mil (-3.3%QoQ) largely due to lower total income and higher provisions.

• Cumulatively for 12MFY18, earnings improved to RM642mil (+54.0%YoY) contributed by significantly lower impairment allowances for loans and financing of 82%YoY after the completion of its impairment programme in FY17. 12MFY18 earnings were within expectation, accounting for 95.4% of our estimate and 102.3% of consensus projection.

• Total income declined 7.2%YoY for 12MFY18 due to lower net interest and non-interest income while Islamic banking income was flattish.

• 4QFY18 saw a credit cost of 1.0% vs. 0.7% in 3QFY18. For 12MFY18, credit cost was 0.3%, a significant improvement over 12MFY17’s 1.9%. It was lower than our projection of 0.5% due to write-backs in provisions in 1QFY18 and 3QFY18.

• Gross impaired loan ratio remained stable at 5.5%. The group’s loan loss cover was 100.6% as at end-Dec 2018.

• Gross loans grew modestly by 2.8%YoY supported by house and corporate financing. Meanwhile, personal and auto financing contracted YoY. Corporate financing was strong at 23.0%YoY supported by disbursements of RM4.0bil in 2018 while for consumer financing, the drawdowns were RM1.6bil in FY18. As at Dec 2018, the group has an undisbursed corporate loan stock of RM5.8bil. For FY19, management is guiding for loan growth of 5.0% which is in line with the economic growth.

• The group has increased its corporate loans composition to 25.4% of total loans with the remaining 74.6% made up of retail loans.

Source: AmInvest Research - 1 Mar 2019