- We maintain our BUY rating on Malaysia Building Society Bhd (MBSB), with an unchanged fair value of RM3.40/share (cum basis) or RM2.99/share (ex-rights price basis).

- Our earnings forecasts and fair value already reflect the latest information on the proposed rights issue, and is fully diluted for the previous warrants issue in FY11. This is based on a fully-diluted ROE (for previous warrants and imminent rights issue) of 19.0% for FY14, leading to fair P/BV of 1.86x.

- MBSB recorded net earnings of RM132.7mil in 3QFY13, which means that annualised net earnings is in line with our forecast and consensus’ RM601.2mil for FY13F. There was a QoQ decline when compared to 2QFY13’s RM165.1mil, which is due to higher collective assessment expense under the loan loss provision line.

- Annualised loans growth is still strong though at 29.0% in 3QFY13, (3Q: +35.5%) and still above the company’s earlier target of 12% to 15% FY13F. We estimate net interest margin of 4.03% in 3QFY13, in line with the company’s target of 4.0% for FY13.

- The personal loan’s annualised loans growth is resilient at 41.8% in 3QFY13, although it is slower than 2QFY13’s 55.2%. Personal loans growth is still above our forecast of 40% YoY for FY13F.

- There was some uptick in gross impaired loans by 4.7% QoQ in 3QFY13, although this basically erased the earlier improvement of -4.1% QoQ in 2QFY13. We estimate that overall gross impaired loans ratio to be stable though at 8.4% in 3QFY13, which is sustained when compared to the significant improvement to 8.3% in 2QFY13. This is the second consecutive quarter of gross impaired loans ratio sustaining below 9% since 1998.

- The company raised its collective assessment rate to 3.57% (taking collective assessment balance carried forward as a percentage of gross loans less individual assessment balance carried forward) in 3QFY13 from 3.34% in 2QFY13. This was attributed to an increase in collective allowance made for personal financing and mortgage portfolios. This also led to higher credit costs of 143bps in 3QFY13, against 71bps in 2QFY13.

- The 3QFY13 is relatively resilient considering that it would have likely reflected more prudent household measures implemented since mid-2013. We maintain BUY.

Source: AmeSecurities