Investment Highlights

• We maintain our BUY call on Malaysia Building Society (MBSB) with a lower fair value (FV) of RM0.93/share from RM0.96/share). We roll over our valuation to a lower FY23F ROE of 8.5% (previously: 8.7%) after fine-tuning our earnings estimates leading to a P/BV of 0.7x.

• We trim our FY22F/23F/24F net profit estimate by 4%/2.6%/0.7% to reflect a drop in non-interest income (NOII) and higher credit cost estimates.

• 1QFY22 core earnings were below expectations, making up only 8.5% of our projection and 9.8% of consensus estimate. The variance to our estimate was mainly due to higher-than-expected allowances for 1QFY22 potential credit losses. This was due to the deterioration in staging of certain retail and corporate loans after the expiry of the moratorium.

• The group reported a lower underlying net profit of RM65mil (-28.7% YoY) in 1QFY22 after excluding mod loss net of tax of RM7mil. The weaker earnings were due to lower non-interest income from the losses of sale in FVOCI and FVTPL securities and higher overhead expenses (opex). The increase in opex was contributed by higher personnel expenses. In addition, establishment expenses rose as a result of the recognition of group’s new headquarters’ depreciation as well as increase in IT maintenance cost.

• 1Q22 net profit margin (NPM) declined 24bps YoY to 3.27% (1Q21: 3.51%). Recall, management has earlier guided for further compression of NPM to 3.15–3.20% for FY22F. Further initiatives on corporate/commercial businesses which generate lower yields and the increase in longer term funding from sukuks, Cagamas and investment accounts contributed to the pressure on NPM. Nevertheless, with the recent OPR hike of 25bps on 11 May 2022 and potentially another rise of 25bps in 2H2022, we expect the group’s NPM to be stable at 3.26% in FY22F.

Source: AmInvest Research - 27 May 2022