INVESTMENT HIGHLIGHTS

• MBSB FY17’s net profit recorded at RM417.1m

• Attributable to lower allowance of impairment losses

• Cost-to-income ratio slightly higher

• Earnings forecasts unchanged

• We maintain our BUY recommendation with TP RM1.50

Earnings above expectations. MBSB recorded FY17 net profit to the tune of RM417.1m. The results came in above ours and consensus expectation, accounting for 106.5% and 119.5% of full year estimates. Cumulatively, the group’s net earnings grew by a whopping +107.1%yoy.

Attributable to lower amount of allowance for impairment losses. The strong earnings growth was due to lower allowance for impairment losses on financing/loans and advances. It declined by - 23.0%yoy for FY17, with 4QFY17 following the same pattern of previous quarters, decreasing by -35.2%yoy. On operational front, lower cost of funds has steered the net interest income higher.

Cost-to-income ratio ticked up. The group’s cost-to-income ratio in 4QFY17 stood at 22.6%, showing marginal increase from corresponding period at 20.8%. This was due to the necessary merger expenses and the expansion of business products and segments. Nonetheless, we opine the level as healthy, in comparison to industry’s average of 49.7%. Meanwhile, the group’s FY17 asset quality as measured by Net Impaired Financing/Loans (NIFL) improved by 0.76ppts yoy to 2.87%.

Dividend. MBSB has proposed a single-tier final dividend of 5 sen/share, which amounted to RM296.2m. This implies a pay-out ratio of circa 70% of its FY17 earnings and a dividend yield of 4.3%.

No impact to earnings. Despite the results came in above our expectations, we are maintaining our FY18 forecast as we have taken into account the reduction of impairment allowance as well as improving net income. We introduce our FY19 earnings forecast, which will reflect MBSB’s full year earnings projection as a full-fledged Islamic banking.

Recommendation. We remain optimistic on the group’s performance moving forward, supported by the current and future initiatives being planned and executed. On the group’s outlook, we are positive on the group’s creation of delivery channels, which will help in new customer acquisition as well as driving down operational expenses. Given this optimistic stance, 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 - 2 Feb 2018