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Malaysian Building Society - Higher tax rate drives earnings lower

kiasutrader
Publish date: Tue, 06 Nov 2012, 09:26 AM
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Period    3Q12/9M12

Actual vs.  Expectations
 The results were within our expectations but marginally below that of the consensus. MBSB reported 9M12 net profit of RM263.1m (70% of our estimate and 67% of the consensus).
  
Dividends   No dividend was declared.

Key Result Highlights
 The 3Q12 PAT of RM90.0m (-4% QoQ) was weak, mainly due to a higher than expected effective tax rate of 49%.  According to management, this was due to adjustments made for non-allowable items, mostly on those relating to collective allowance (CA). We understand that management has submitted an application to MOF/IRB to seek approval whereby the CA can be deducted in the tax computation, but the group has yet to get the approval at this juncture.

 Excluding such hiccup, the 3Q12 revenue of RM259.5m was actually strong, jumped 28% YoY and 10% QoQ, driven by higher loans of RM23.2b (+60% YoY, +6% QoQ) with an improved NIM of 4.76% (vs. FY11's 4.66% and 2Q12's 4.57%). 

 MBSB had an aggressive PF-I promotion campaign in 1H2012 that has enabled the group to capture market shares from its peers. The group successfully disbursed RM9.3b of new PF-I loans YTD, exceeding management's full-year target of RM8.0b, which helped its personal financing loans segment grew strongly  by +93% YTD which helped to cushion the flat mortgages and corporate loans growth rates of -2.5% and +0.2%, respectively.  

 With the promotion campaign ended in June-2012, 3Q12 saw a healthy recovery in fee-based incomes, which were up 42% QoQ (or -14% YoY) to RM34.2m. 

 The net NPL ratio meanwhile has improved from 5.8% in 2Q12 an 9.0x% in Dec-11 to 4.3% in 3Q12, ahead of the management's target of 5%. 

Outlook   MBSB's balance sheet expansion story remains intact. The group, however, needs a new capital management plan to address its relatively low Core-Capital Ratio of 6.0% as at end-Sep12. We believe the plan could include securitisation of loans, issuance of debts  and also possible capital raising exercises. We also reckon that such plan could be unveiled by the management by the end of this year.

Change to Forecasts
 No change in our earnings estimates.

Rating  Maintain OUTPERFORM
 The stock's valuation still looks undemanding at 6.0x PER to its FY13 EPS of 38.1 sen against its banking peers of 11-13.0x. Its ROE of 28.1% remains one of the highest for financial stocks.

Valuation    Maintaining our target price at RM2.70 based on a targeted P/BV of 1.6x over its FY13 BV of RM1.70. 

Risks   Potential tighter regulations by BNM.

Source: Kenanga
MBSB (1171)
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