- We maintain our BUY rating on Malaysia Building Society Bhd (MBSB) with an unchanged fair value of RM2.40/share. Our fair value is based on a fully diluted adjusted-ex-rights ROE of 17.4% for FY14F, leading to revised fair P/BV of 1.7x.

- MBSB reiterated at the recent briefing that there may be some dampening effect on the personal loans segment, given the tighter regulations implemented since mid-2013. The company affirmed that it intends to compete based on better turnaround time and product features.

- We are maintaining our loans growth forecast of 6.8% for FY14F (FY13: 18.9%). Our forecast for personal loans growth (73% of total loans) is 6.0% for FY14F (FY13: 31.4%). We expect corporate loans (10% of total gross loans) growth to be higher at 16% in FY14F (FY13F: -17.0%).

- The company affirmed that it will focus on the corporate segment for growth ahead. It believes that its key competitive edge is its relatively fast turnaround time within this segment. Furthermore, MBSB believes that there is room to boost the corporate loan portfolio through loan syndication participation.

- Net interest margin was 4.51% in 4QFY13. We estimate NIM of 4.50% for the whole of FY13, which is well above the company’s target of 4.00%. Looking ahead, the company is confident of maintaining its NIM based on its existing pipeline of loans. It reckons that the compression on NIM is not significant for both the corporate and consumer sectors.

- Gross impaired loans improved significantly with a 39.7% QoQ drop in 4QFY13 to RM1.6bil, from RM2.7bil, as it undertook an exercise to write-off some legacy impaired loans against past provisioning. Thus, there was no impact to P&L. The write-off led to significant improvement in impaired loans data, from 8.4% in 3QFY13 to 5.2% in 4QFY13. More importantly, loan loss cover was not compromised despite the write-off, as the loan loss cover had also strengthened to 98.2% in 4QFY13 (3QFY13: 93.0%).

- The company further indicated that Tier 1 ratio will be above 8% with its recently completed rights issue. The company had done well in FY13 given the strong earnings growth of 34%, with earnings now comfortably at the RM600mil mark. Looking ahead, we expect MBSB to continue to explore new growth areas, given the tighter lending guidelines in the personal loans segment. 

Source: AmeSecurities