Investment Highlights

• We maintain our BUY call on Malaysia Building Society (MBSB) an unchanged fair value (FV) of RM0.78/share supported by an ROE of 7.2% for FY21, pegging the stock to a P/BV of 0.6x. No change to our estimates.
• The group reported a lower underlying net profit of RM253mil (-33% QoQ) in 3Q20 due to lower NOII and higher overhead expenses. The decline in NOII was largely attributed to lower gains from disposal of FVOCI securities of RM56.8mil in 3Q20 vs. RM107.5mil in 2Q20.
• For 9MFY20, the group delivered core earnings of RM520mil (+44.2% YoY), underpinned by higher gains from sales of FVOCI securities by RM155.8mil and lower funding cost.
• 9MFY20 net profit margin (NPM) expanded by 31bps YoY to 3.15% with the decline in cost of funds. MBSB has advantage with its 51.7% financing in fixed rate which has helped to widen its profit margin after the recent consecutive cuts in OPR.
• Normalized earnings for 9MFY20 were above expectation, making up 97.9% and 85.9% of our and consensus FY20 net profit estimates respectively. The variance was largely due to lower allowances on loan impairments. We keep our FY20 forecast unchanged as 4Q20 is likely to see the group booking further pre-emptive provisions for the impact of Covid-19.
• Total financial investments stood at RM11.2bil as at the end of 3Q20. 3Q20 saw the group’s FVTOCI reserves continue to rise to RM305.5mil from RM254.9mil in 2Q20 with the decline in MGS yields.
• An outstanding balance of RM1.67bil of conventional loans have yet to be converted. In 3Q20, total deposits rose slightly to RM35bil from RM34bil in the preceding quarter with a lower composition of retail deposits at 14.32%.
• In 3Q20, gross loans stayed muted at -0.3% YoY vs. industry’s 4.4% YoY, underpinned by a slower pace of corporate loans and the contraction in personal and auto financing. Elsewhere, mortgage financing grew by 11.1% YoY or a YTD growth of 8.2%. Its corporate financing composition was 27.0% of the total financing with the remaining 73.0% comprised of retail financing.

Source: AmInvest Research - 1 Dec 2020