We maintain our GGM-derived PBV TP of RM0.51 (COE: 12.0%, TG: 3.0%, ROE: 6.5%) and UNDERPERFORM call post 2QFY22 results briefing. The group is recalibrating its strategies to capturing a larger retail financing base while picking up more CASA accounts. Meanwhile, credit costs should be loftier than earlier anticipated on certain corporate accounts. On the bright side, the MIDF acquisition plans are still on track as we approach the Oct 2022 deadline.

We came away from MBSB”s 2QFY22 results briefing with our conservative view intact. Key takeaways are as follows:

- Community-centric financing targets. YTD, the group appears to has only moderately expanded its financing base (+3%), grossly behind its full-year target of 10-11%. This was attributed to previously heavy focus on corporate customers which were adversely affected by unfavourable macros. To counteract this, the group will prioritise uplifting its retail (75% of total financing) portfolio with community-targeted strategies with hopes of wider penetration to new customers. This is anticipated to aid the group in achieving its revised 6% financing growth target. Meanwhile, avenues in trade financing are also showing promise, but we do not believe it will be as impactful as its renewed efforts in the retail space.

- CASA slowly gaining momentum. The group previously hoped to gain a CASA-to-deposits ratio of 10% (YTD: 5%, FY21: 3%) which is still largely below the industry readings of above 30%. Though the group aimed to offer competitive rates in gaining more retail depositors, the group believes a more achievable target for FY22 would be raising its mix to RM2.0b (or 6% of total deposits). More aggressive levels could be achieved once targeted initiatives are further tuned. Meanwhile, the higher cost of funds and unfavourable fixed financing proportions will continue to place the group in a margin erosive state from further rate hikes (FY22 guidance: 3.15-3.20%, FY21: 3.24%)

- Credit costs normalisation expected. Against the earlier 45 bps credit cost guidance, the group have already registered a half yearly charge of 60 bps owing to heavier exposure to non performing accounts in the construction sector. With the expected increase in financing mix to be more retail-driven, the group opines that its 2HFY22 provisioning needs would be more stable, staying close to its 60 bps target by year-end.

- MIDF plans still on track. Though no further details could be shared, the group reaffirmed that its plans to acquire MIDF are progressing as expected. The acquisition seeks to yield synergistic benefits to the MBSB group while injecting non-duplicative business units. Recall that the deadline set by Bank Negara Malaysia is Oct 2022 to obtain its approval.

Post updates, we make no changes to our FY22F/FY23F assumptions as we had already inputted conservative financing growth and credit cost estimates which are close to the renewed guidance prior to the briefing.

Maintain UNDERPERFORM and TP of RM0.51 for now. Our TP is based on a GGM-derived PBV of 0.39x (COE: 12%, TG: 3%, ROE: 6.5%) on our FY23F BVPS of RM1.30. Although the stock’s dividend prospects might appear attractive at 6-7%, the concern of further earnings disappointments is weighing down sentiment and capital returns for the stock. Still, we reckon positive developments in its MIDF acquisition could boost short-term sentiment.

Source: Kenanga Research - 29 Aug 2022