Investment Highlights

• MBSB 9MFY17’s net profit recorded at RM293.1m

• Driven by lower amount of allowance for impairment losses

• Cost-to-income ratio improved

• Earnings forecasts revised upwards

• We maintain our BUY recommendation with TP RM1.50

Decent quarter. MBSB recorded 9MFY17 net profit to the tune of RM293.1m. The results came in above ours and consensus expectation, accounting for 90.2% and 84.0% of full year estimates. The variance in the result was due to our overestimation of its provisioning. Cumulatively, the group’s net earnings grew +88.2%yoy despite revenue dipping slightly by only -0.6%yoy.

Attributable to lower amount of allowance for impairment losses. The strong growth in net profit was due to the lower allowance for impairment losses on financing/loans and advances, where it registered a -25.7%yoy decline. On operational front, lower cost of funds has led to higher net income.

Cost-to-income ratio improved. The group’s cost-to-income ratio in 3QFY17 stood at 21.9%, showing improvement from corresponding period at 22.8%. Meanwhile, gross income was largely accounted by corporate loans and financing following the continued expansion of the segment’s asset base. However, both personal and auto financing revealed a downtrend as result of lower disbursement and decreasing asset base.

On merger with AFB. Management highlighted that the consolidation exercise is well underway with integration phases already sorted out in the span of 3-year period. On the group’s initiatives as a banking platform, we are positive on its efforts to digitalise its business given current consumer trend.

Upward revision to earnings. We are revising upwards our FY17 and FY18 forecast by 20.4% and 34.0% respectively as we impute lower impairment allowance as well as better net interest income.

Recommendation. We continue to be optimistic on the group’s performance moving forward, supported by the current and future initiatives being planned and in the midst of execution. We are also positive on that the merger with AFB as it will boost its ability to expand its business through more variety and diversity in terms product offering. Hence, we maintain our BUY call on the stock with TP of RM1.50. This is pegging its FY18 BVPS to PBV of 1.1x.

Source: MIDF Research - 24 Nov 2017