- 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 2QFY14 net earnings if annualised surpassed our forecast by 43.1%, and consensus’ FY15 net earnings estimate of RM638.3mil by 40.3%. Again, the positive variance came from a low loan loss provision, similar to 1Q’s trend. The 2QFY14 net earnings made up 68.7% of our full-year forecast and 67.3% of consensus forecast.

- Loans growth remained flattish, with an estimate annualised loans growth of 1.4%. The flattish growth came mainly from the personal financing segment (72.9% contribution to total loans). Personal financing loans growth remained flat with loans growth of only 0.1% QoQ in 2QFY14, similar to 1QFY14’ 0.1% QoQ trend. However, this is widely expected as the morestringent household measures came into effect from mid-2013 onwards.

- However, corporate loans segment expanded at a healthy rate of 3.1% QoQ in 2QFY14 (1QFY14: 3.9% QoQ). These are mainly backed by loans to the property development, oil and gas, and infrastructure sectors. Furthermore, the company continued to be involved in the financing of the government’s private finance initiative (PFI) projects to build education hubs.

- The company has continued to secure strong loans approvals in the corporate segment, totally RM1.4bil in 2QFY14. This is comparable to the RM1.5bil loans approved in the corporate segment. There was minimal disbursement (only RM0.56bil in 2QFY14) which means that existing undisbursed loan stock for the corporate segment has climbed to RM5bil as at end-2QFY14, from RM3bil in end-1QFY14. This indicates strong pipeline ahead for corporate loans growth.

- The 2Q results indicate that the company continues to make good inroads into the corporate loans segment, which is now its targeted growth area.

- Otherwise, asset quality remained stable. There was a positive writeback the loan loss provision line in this quarter of RM15.2mil. These are related to a couple of legacy corporate accounts. Aside from this, collection process has been intensified, which led to better recoveries as well from the mortgage segment.

- We maintain HOLD.

Source: AmeSecurities