MBSB held an analyst briefing yesterday chaired by its CEO, Dato Ahmad Zaini Othman. We came back with the view that the group is likely to see a good earnings growth in 2H12, led by a substantial loan disbursement of RM7.2b and a healthy recovery in its non-interest incomes with marginal NIM compression. Its earning visibility is now clearer as compared to 1H12. Postbriefing, we reiterate our OUTPERFORM rating on MBSB with an unchanged target price RM2.70.

Key highlights.The group adopted the tactical strategy of a zerotransfer promotion campaign in 1H12 in its efforts to grow its loans. In total, RM4.7b of PF-I loans were disbursed in the 2Q (vs. RM2.5b in 1Q) with an aggregate total loan disbursement of RM7.2b in 1H12.

This also means that the group has nearly achieved its RM8.0b full-year loan disbursement target within the first six months of the year. In addition, it still has RM350m undisbursed loan from the corporate segment, which will further support  its  loan  growth  target  in  the upcoming quarter. 

Fee-based income however, fell in 2Q12 due to the promotion transfer packages, which helped in subsidising the insurance fee, stamp duty and migration cost from customers. However, as the promotion programme ended by June 2012 and subsidising no longer required, we would likely to see a healthy recovery in fee-based income in 2H12.

The group's main strategy for the remainder of the year is to build its assets by continuing profitable programmes such as its hire-purchase loans, with the targeted potential  clients being from the Klang Valley area. Thus far, hire-purchase loans only account for less than 1% of its total RM20.2b gross loans as compared to the banking industry's average of 14.1%. 

The net NPL ratio meanwhile has improved from 7.3% in 1Q12 to 5.8% in 2Q12. MBSB is looking to further shave its net NPL ratio to 5% this year by refinancing two legacy loans as well as selling of some non-core assets.  

The group has a low 6.6% Core-Capital Ratio and Tier-1 Capital Ratio of 10.5% as at end-June. As such, we believe a new capital management plan is needed to continue to support the group's high balance sheet growth for 2013. The plan should include securitisation of loans, issuance of debts and also possible  capital raising exercises. We think the exact route under such a plan will be unveiled by the management by the end of this year.

OUTPERFORM maintained.  We are maintaining our target price of RM2.70 based on a targeted P/BV of 1.6x over FY13 BV of RM1.70. Our target price of RM2.70 implies 7.1x and 6.0x PER on FY12 EPS and FY13 EPS respectively. At the current level, the stock offers a potential capital upside of 21%. Together with an additional dividend yield of 2.5%, this will bring the potential total return to 23% over the next 12 months. The group's ROE of 28.1% remains one of the highest among financial stocks.

Source: Kenanga