Investment Highlights

• We maintain our BUY call on Malaysia Building Society (MBSB) a revised fair value (FV) of RM1.10/share from RM0.78/share supported by an ROE of 9.6% for FY22, pegging the stock to a P/BV of 0.8x. We tweak our FY21/22 net profit by 29.8%/8.8% to account for higher estimates of its Islamic banking income.

• MBSB reported lower underlying net profit of RM97mil (- 61.7% QoQ) in 4Q20 largely due to higher loan impairment allowances. The rise in impairment allowances was mainly on the group’s retail loans due to higher delinquencies after the end of the 6 months’ automatic moratorium on 30 Sept 2020. As of end-Dec 2020, the group had booked provisions in the form of management overlays amounting to 7% of ECL of loans (circa RM137.6mil)

• For FY20, the group delivered lower core earnings of RM653mil (-8.9% YoY), underpinned by higher opex and provisions.

• 12MFY20 net profit margin (NPM) rose by 40bps YoY to 3.29% contributed by lower funding cost. The higher mix of fixed rate loans at 51.4% with funding cost declining after OPR cuts have helped to widen its profit margin. NPM in FY21 is likely to be flat against the level in FY20 unless another OPR cut materializes, which we see as unlikely for now.

• Normalized earnings for FY20 were above expectation, accounting for 123.1% and 198.2% of our and consensus estimates respectively. This was due to a higher-thanexpected net income after stripping out a modification loss of RM505mil.

• Total financial investments declined to RM10.7bil as at the end of 4Q20 (3Q20: RM11.2bil) as the group monetised gains of RM53.8mil from the disposal of FVOCI securities. 4Q20 saw the group’s FVTOCI reserves falling to RM234.7mil.

• An outstanding balance of RM1.48bil of conventional loans has yet to be converted. In 4Q20, total deposits slipped to RM33.9bil from RM35bil in the preceding quarter with a higher composition of retail deposits at 15.2% (3Q20: 14.3%).

Source: AmInvest Research - 26 Feb 2021