- We maintain HOLD on Malaysia Building Society Bhd (MBSB), with an unchanged fully-diluted fair value of RM2.60/share. Our fair value is for ex-warrants and is based on an unchanged estimated adjusted (for warrants) FY13F ROE of 19.8%, leading to a fair P/BV of 2.0x.

- MBSB posted a large quarterly net earnings of RM166mil in 1QFY13, representing a huge 109% YoY increase. The large increase stemmed from a strong growth in net interest income. On a QoQ basis, net earnings declined 10% QoQ in 1QFY13. But this was due to non-recurrence of the one-off gross gain of RM55mil (net RM41mil, after tax) related to sale of freehold commercial land in Johor, which was booked in 4QFY12. Stripping this off, net earnings expanded strongly by 17% QoQ.

- Net earnings were thus 21.2% above our forecast and 23.8% above consensus’ RM537mil FY13F. The main surprise was the better-than-expected net interest income and low loan loss provision.

- Annualised loans growth remained strong, at 32.9%, above the company’s revised target of 12% to 15% FY13F. This was underpinned by the personal financing segment, which now made up 69% of total loans in 1QFY13. We understand the company has achieved about RM3.5bil of its targeted gross personal loan disbursement of RM14bil in FY13F.

- Net interest margin came in at 4.65% in 1QFY13, lower than 4QFY12’s 4.92%, due to higher deposit and consequently higher cost of funds. Nevertheless, NIM came in well above the company’s 4.00% target for FY13F and our forecast of 3.61%.

- There were strong recoveries in the quarter, which more than doubled to RM484mil (4QFY13: RM220mil). This contributed to an improvement in the gross impaired loans, with the absolute balance reduced by 9.3% QoQ. Overall gross impaired loans ratio was at only 9.4% in 1QFY13, vs. 11.2% in 4QFY12. This was the first time that gross impaired loans ratio has improved to below 10% since 1998, a strong achievement for MBSB. Loan loss cover has now been strengthened, to 92.2% in 1QFY13 from 86.2% in 4QFY12.

- 1QFY13 indicates a strong surge in MBSB’s net earnings. Given the strong earnings, we expect MBSB’s share price to remain firm.

Source: AmeSecurities