Kenanga Research & Investment

Malaysia Building Society - Strained Top Line Persists

Publish date: Thu, 30 Nov 2023, 10:41 AM

MBSB’s 9MFY23 net profit (-27%) missed expectations as its investment performances were unfavourable amidst weaker interest margins. We trim our FY23F/FY24F forecast by 12%/16% on concerns of prolonged softness. While the group’s earnings delivery may appear volatile, certain headline targets still met guidance as of 3QFY23 (financing growth, credit cost). Maintain UNDERPERFORM and GGM-derived PBV TP of RM0.63.

9MFY23 missed. MBSB’s 9MFY23 net profit of RM190.7m missed our expectations, accounting for 67% of full-year forecast. The negative deviation is attributed to lower-than-expected non-interest income as the group sustained a drag in forex losses. No dividend was declared as expected, given the group’s trend of single payments.

YoY, 9MFY23 total income declined by 27% owing to suppressed NIMs (1.95%, -106 bps) as funding costs remained elevated. This was in spite of a 7% growth in financing portfolio. However, this was slightly cushioned by a 24% improvement in non-interest income as the group saw better investment gains. Meanwhile, cost-income ratio grew to 57.6% (+18.5ppts) as higher personnel costs did not help the decline in top line. The group reported a credit cost of 30 bps (-81 bps) as it booked in write-backs from its consumer segment. All in, 9MFY23 net profit came in at RM190.7m (-27%), in line with the lower income.

QoQ, 3QFY23 total income inched down (-2%) owing to weakness in its investments. That said, its net interest income did see a 3% improvement as NIMs recovered (1.95%, +2 bps), while the group booked a credit cost of 79 bps (2QFY23 saw a net writeback of 52 bps), 3QFY23 net earnings appeared highly compressed at RM32.8m (- 61%).

Outlook. Evaluating its headline targets, we opine the group could still be on track to meet its financing growth guidance of 7%-8% as it builds on its personal financing and mortgage books. The group had set for NIMs to close at 2.0%-2.1% which it may yet to achieve given its 3QFY23 spread which appears to be more favourable. While its sudden credit cost input seems to be alarming, this is still well within the group’s guidance as its revisits non-performing accounts. This may be necessary as the group’s loan loss coverage of 55% is likely to demand recalibration.

Forecasts. Post results, we slashed our FY23F/FY24F earnings by 12%/16% on possible softness in its non-interest components. We had already accounted for a credit cost of close to 30 bps for FY23, aligning with corporate guidance.

Maintain UNDERPERFORM and TP of RM0.63. Although we trimmed our forecast, the translation to BVPS was minimal at RM1.13 for FY24. Our GGM-derived FY24F PBV of 0.56x (COE: 9.2%, TG: 2.0%, ROE: 6.0%) was unchanged. While investors may be keeping close tabs on the integration of MIDF into the group’s operations, synergies may only be extracted in a longer term. Additionally, the group may also require greater efforts to reoptimize its funding mix especially given its low CASA levels, which may make it less attractive than its peers.

Risks to our call include: (i) lower-than-expected margin squeeze, (ii) higher-than-expected loans growth, (iii) slower-than-expected deterioration in asset quality, (iv) further gains in capital market activities, (v) favourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 30 Nov 2023

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