Investment Highlights

• We maintain BUY on Malaysia Building Society (MBSB) a revised fair value (FV) of RM1.05/share from RM1.10/share supported by slightly lower ROE of 9.2% for FY22, pegging the stock to a P/BV of 0.8x. We adjust our FY21/22/23 earnings by -0.7%/-4.3%/-8.6% after fine-tuning our estimates for non-interest income (NOII) and credit cost.

• We attended a briefing by the group’s management last Friday. The group is now looking at a possible corporate restructuring which will see MBSB Bank taking over the listing status as the financial holding company.

• It aims to be the 2nd full-fledged financial institution to be listed as a shariah-compliant stock after BIMB. The completion of this corporate exercise will see an improvement in dividend efficiencies. Also, it will attract investors seeking shariah-approved stocks while allowing the bank to have direct access to the equity capital market for funding.

• We understand that improvements to the group’s digital capabilities are also in progress. This will narrow the digital gap with its peers.

• The group has guided for a credit cost of 50–60bps for FY21 (previously: 70–80bps).

• On the total approved targeted repayment assistance (TRA) to retail borrowers, it amounted to 25% of the total portfolio (personal, property and auto financing: 21%, 3%, 1%). Meanwhile, the total approved TRA to non-retail borrowers amounted to 11% of the total portfolio.

• The group posted a higher underlying net profit of RM91mil (+224.5% YoY) in 1Q21 after stripping out the net modification loss after tax (RM27.4mil) from the moratorium granted to eligible B40 and M40 borrowers.

• The improved earnings were contributed by higher total income and lower provisions.

• Up until 1Q21, the group has booked in provisions in the form of management overlays amounting to 5% of ECL for loans (circa RM107mil). We understand that these provision buffers have yet to be utilized. It will provide some cushion to the impacts from the latest MCO restrictions announced.

Source: AmInvest Research - 31 May 2021