INVESTMENT HIGHLIGHTS

• MBSB’s 1QFY17 net profit of RM101.3m (+190.9%yoy) came in above ours and consensus’ expectation

• 1QFY17 PBTZ of RM126.8m increased substantially

• We revise the FY17 earnings forecast upwards

• Upgrade our recommendation to BUY with an adjusted TP of RM1.50 (from RM1.08) as we rollover our valuation to FY18.

1QFY17 earnings above expectation. MBSB’s 1QFY17 net profit of RM101.3m (+190.9%yoy) was above ours and consensus’ expectation, which accounted a respective 34.0% and 36.4% of full year forecasts.

Solid quarter earnings. For 1QFY17, its PBTZ significantly jumped to RM126.8m (>+100%yoy and -16.0%qoq) which was largely attributable to higher gross loans (+4.1%yoy) and lower cost of funds. The cost of funds has showed further improvement with cost to income ratio coming in at 19.7% (-2.4ppts yoy) compared to 22.2% in 1QFY16.

Lower allowances for impairment losses. According to management, its higher quarterly earnings was also attributable to lower allowances for impairment losses on loans, advances and financing, as it continued its asset impairment programme. This is part of their “closing the gap” exercise to better align its framework with banking standards and best practices.

Asset quality improved. Overall, the Group’s net impaired financing/loans ratio continue to strengthen at 2.87% (-0.3ppts yoy) in 1QFY17, thanks to the company’s efforts in early detection and effective monitoring of account. We opine that the positive trend is poised to continue as the company eyeing for higher corporate disbursement in FY17.

Revising earnings upwards. We revised our FY17 and FY18 earnings forecast upwards by +4.5% and +3.2% respectively to reflect improvements in key areas such as better interest income stemming from better growth in loans book and lower estimated allowances for impairment programme.

Recommendation. We were pleasantly surprised by the strong growth in MBSB’s earnings and loans book. We believe that this loans book growth momentum will be carried over to FY18, given that our in-house economics team expect better GDP performance this year. Another potential upside is the impact from increased corporate financing disbursement. Hence, with better outlook expected, we upgrade to BUY. We adjust our TP to RM1.50 (from RM1.08) as we rollover our valuation to FY18, pegging its BVPS to PBV of 1.0x

Source: MIDF Research - 25 May 2017