INVESTMENT HIGHLIGHTS

• MBSB’s FY16 net profit of RM201.4m (-22%yoy) came in line with ours but below consensus expectation

• 4QFY16 earnings significantly jumped to RM45.6m due to lower provisions

• Pursuant to above, we make no changes to our existing FY17 forecast numbers

• We maintain our NEUTRAL recommendation with an unchanged TP of RM1.08

FY16 earnings met our expectation. MBSB’s FY16 net profit of RM201.4m (-22%yoy) were within ours but below consensus expectation, which accounted a respective 95% and 90% of full year forecasts.

Solid quarter earnings. For 4QFY16, its earnings significantly jumped to RM45.6m (>+100yoy and -21%qoq) from a loss of RM15.8m in corresponding period last year. The variance was largely due to lower allowance for loan impairment losses on loans, advances and financing of RM168.9m (-37%yoy and -20%qoq) and higher net operating income from Islamic operations of RM304.7m (+12%yoy and 2%qoq).

Loans grew marginally. As of FY16, gross loans and financing expanded to RM35.3b (+3.5%yoy) from RM34.1 on the back of more financing government contracts and projects especially the affordable housing.

Asset quality remained healthy. Overall, the Group’s net impaired financing ratio remained healthy at 2.87% (+0.1%ppts yoy) following selective lending approach by Management to secure assets.

Single-tier final dividend of 3.0sen proposed with an option to re-invest. Similar to last year, the Management has proposed for a single-tier final dividend of 3.0%, which implied 3.0sen per share for FY16. The proposed dividend also comes with an option to reinvest into additional shares via dividend reinvestment plan for the full 3.0sen per share dividend.

Impact on earnings. As FY16 results were within our expectation, we therefore retain our existing FY17 forecast numbers at this juncture.

Recommendation. All in all, we do not see any major positive earnings surprise this year. We believe the current share price has already reflected its potential earnings growth as the impairment programme is on track with the Management’s plan. Hence, we maintain our

NEUTRAL recommendation with an unchanged TP of RM1.08. Our valuation is pegged to PBV of 0.9x, which is 1 standard deviation below its 3-year average PBV of 1.6x

Source: MIDF Research - 22 Feb 2017