We remain cautiously optimistic of a steady 11% FY17-19 EPS CAGR following the merger with AFB in 1Q18. Valuation is undemanding at 1x P/B versus 10Y historical average of 1.26x. Recent base building above RM1.16 (200d SMA) is positive for a potential triangle breakout.

An Islamic licensed bank after merger with AFB. Management is optimistic of the prospects of the new platform upon completion of the merger exercise, with focus in the affordable housing projects and the penetration in selected SME sectors, coupled with rolling out of new products in the immediate years. Meanwhile, the group’s creation of delivery channels should bode well in new customer acquisition as well as driving down operational expenses.

Undemanding valuation. At RM1.19, MBSB is trading at 1x P/B, which is 21% below its 10Y historical average of 1.26x. We believe such discount have priced in most of the negatives (eg. margin squeeze, lower-than-expected loans & deposits, deterioration in asset quality) and provided sufficient margin of safety to cushion further sharp share price decline.

Positive downtrend line breakout. MBSB has been trending above the 200d SMA support trend line since May 2018. A decisive breakout above downtrend line at RM1.23 will spur share prices higher towards RM1.31 (21 Feb high) before testing our LT objective at RM1.38 (22 June 2017 high). Key supports are RM1.10-1.16. Cut loss at RM1.09.

Source: Hong Leong Investment Bank Research - 22 May 2018