Investment Highlights

• We maintain our BUY call on Malaysia Building Society (MBSB) a revised fair value (FV) of RM0.88/share (previously: RM1.08/share), supported by a lower ROE of 8.2% for FY22, pegging the stock to a P/BV of 0.7x.

• We trim our FY22/23 earnings by 5.8%/10.9% after imputing lower net profit margin (NPM) assumptions.

• Valuation of the stock remains undemanding, trading at 0.5x FY22 P/BV.

• The group reported a higher underlying net profit of RM164mil (> +100.0% QoQ) in 4Q21 after excluding mod loss net of tax of RM87mil.

• The improved earnings were contributed by write-backs in provisions for potential credit losses after an improvement in staging of borrowers’ loans. Recall in 3Q21, the group has set aside provisions of RM135mil for corporate loans and financing due to delays in payments. With the arrears of the corporate borrowers regularized, provisions taken have been written back in 4Q21.

• 12M21 core earnings came in at RM676mil after stripping out mod loss, improving modestly by 3.5% YoY. This was contributed by lower provisions.

• Cumulative earnings were below expectations, making up only 85.9% of our projection. The variance to our estimate was due to lower-than-expected net income from Islamic operations with a slower financing growth and higher compression in NPM. Meanwhile, it was within consensus estimate, accounting for 103.2% of street’s numbers.

• 12M21 NPM declined 5bps YoY to 3.24% due to lower average financing yields. Management guided for a further compression of NPM to 3.15–3.20% for FY22. Further initiatives to focus on corporate/commercial businesses which generate lower yields and the increase in longer term funding from sukuks, cagamas and investment accounts are expected to contribute to the drop in NPM ahead.

Source: AmInvest Research - 25 Feb 2022