We maintain our BUY call on Malaysia Building Society (MBSB) with a lower fair value (FV) of RM1.02/share from RM1.15/share. Valuation remains undemanding with the stock trading at 0.7x to our BV/share estimate. Our revised FV is based on a lower ROE of 8.1%. This leads to FY20 P/BV of 0.8x (previously 0.9x) after factoring in lower net interest income, higher provisions for FY19 and another 25bps OPR cut in 2H19. We trim our FY19/20/21 earnings estimate by 10.2/%7.0%/5.5% to RM560.2mil/RM651.7mil/RM729mil.
The group reported a higher 2Q19 net profit of RM106mil (+26.7% QoQ; +24.0% YoY). QoQ, earnings improved contributed by the write-back in provisions for corporate loans which were in stage 2.
6M19 earnings of RM190mil (-52.8% YoY) were below expectations, accounting for 30.4% of our estimate and 30.5% of consensus projection. The deviation from our expected numbers was mainly caused by the higher provisions for expected credit losses under the MFRS 9.
The group’s total income was subdued with a marginal decline of 0.6% YoY in 6M19. Higher non-interest income (NOII) was offset by lower net interest income due to conversion of conventional to Islamic assets as well as decline in Islamic banking income.
2Q19 saw an improvement in credit cost to 1.0% vs. 1.7% in 1Q19. The group’s credit cost for 6M19 was 1.4% compared to a net write-back in provisions (credit cost: -0.2% for 6M18). The group continues to guide for a credit cost of 0.5% (50bps) in FY19. We expect the group’s credit cost to improve in the quarters ahead from the reversal of provisions booked in 1Q19.
There were upticks in asset quality ratios with gross impaired loan and net impaired loan ratio rising to 5.6% and 2.4% in 2Q19 from 5.3% and 2.1% respectively in 1Q19. By sector, the increase was contributed by higher impairments of loans to the household, construction and the finance, insurance and services sectors. The group’s loan loss cover declined to 109.3% due to the rise in impaired loan balances by 8.9% QoQ.
YTD gross loan accelerated to 6.0% annualized (1Q19: 0.8% annualized) supported by house and corporate financing. Meanwhile, growth in auto financing remained subdued while PF-I financing contracted with lower disbursements. Meanwhile, its corporate financing composition inched higher QoQ to 27.4% of the total financing with the remaining 72.6% consisting of retail financing.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....