- We maintain our HOLD 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 ROE of 17.4% for FY14, leading to a revised fair P/BV of 1.7x.

- MBSB’s annualised net earnings for 1QFY14 came in above our and consensus’ forecasts by 25.8% and 25.5% respectively. The main surprise was the low loan loss provision in 1Q. The 1Q net earnings made up 31.4% of both our full-year and consensus forecasts.

- Loans growth was flattish at 0.4% QoQ in 1QFY14 (3QFY13: -2.4% QoQ), but this was likely in line with expectations. This came on the back of a flat growth of 0.1% QoQ for its personal financing segment (73% of total loans), similar to 4QFY13’s +0.1% QoQ. The flattish trend is most likely due to ongoing impact from more stringent household measures which came into effect from mid-2013 onwards.

- Notably, the corporate loans growth was stronger than other segments’ with a 3.9% QoQ increase in 1QFY14, translating to an annualised loans growth of 15.6% for this segment. The company said that this has been achieved by tapping into opportunities under the Federal government’s Economic Transformation Programme (ETP).

- The company revealed at the briefing that it has secured a total of RM1.5bil loans approved in the corporate segment (existing base of RM3bil), indicating strong pipeline ahead for corporate loans growth.

- Gross impaired loans had seemingly increased by a fair bit by 47.3% QoQ to RM2.4bil in 1QFY14. However, the gross impaired loan basis has been changed to reflect a 3-month classification from 1QFY14 onwards, compared to a 6-month classification basis in 4QFY13. Thus, the basis may not be entirely comparable. Gross impaired loans ratio has correspondingly moved up to 7.6% in 1QFY14, from 5.2% in 4QFY13. Besides impact from the new classification, there has also been some impact on personal loans impaired loans resulting from some resignations by civil servant borrowers. The resignations may be due to movements by civil servants into private business opportunities. This latest resignation trend may stabilise by second quarter.

- The 1QFY14 results indicate slower loans growth, but this is likely in line with expectations. The lower loans growth was offset by low loan loss provision, which remained benign. 

Source: AmeSecurities