• Maintain HOLD (TP: RM0.80). Malaysia Building Society Berhad (MBSB) reported a 9M24 core PATAMI of RM255mn (+34% YoY), surpassing both ours and Bloomberg consensus’ estimates, representing 83% and 88% of full year forecast, respectively. The strong growth in core PATAMI was driven by a significant increase in non-interest income (+292% YoY) to RM145mn from RM37mn in 9M23. This was primarily due to improvement in advisory services, fee income, gain on financial investments and contributions from MIDF. As a result, we raise our 2024F’s earnings by 8% to RM326mn from RM306mn. We maintain our HOLD call on MBSB with a GGM-derived TP of RM0.80 (COE: 7.8%, Sustainable ROE: 5.1%).

• Key Highlights. In 3Q24, MBSB’s net profit margin (NPM) improved by 0.6ppts YoY to 2.55% from 1.96% in 3Q23, driven by higher customer deposits (+8% YoY) and CASA ratio of 8.8% (3Q23: 6%). The cost-to-income ratio (CIR) decreased to 55.4% from 57.6% in 3Q23, reflecting efficient cost management. The gross loans/financing grew by 6% YoY to RM43.1bn from RM40.5bn in 3Q23 supported by robust growth in both mortgage and commercial financing. The gross impaired financing ratio (GIFR) also improved to 6.7% from 7% in 2Q24, reflecting better asset quality and risk management.

• Earnings Revision. We raise our 2024F’s core PATAMI by 8% to RM326mn from RM306mn, driven by an upward revision of our non-interest income assumptions following 9M24’s stronger-than-expected performance, accounting for 108% of our full-year forecast.

• Outlook. While MBSB showed strong financial performance in 3Q24, we foresee a high likelihood that MBSB will miss its 2024F and 2026F targets for ROE and GIFR. We believe a more aggressive approach from management is needed to recover non-performing loans, alongside more stringent credit assessments to ensure the quality of loans and financing.

Source: BIMB Securities Research - 27 Nov 2024