KEY INVESTMENT HIGHLIGHTS

• Earnings above expectations due to unexpected write backs

• Beside the write back, PPOP growth contributed to earnings expansion

• Financing growth was tepid possibly as MBSB continue to reorganize its asset mix

• Strong growth in deposits and CASA gaining traction

• Maintain earnings forecast.

• Maintain NEUTRAL with revised TP of RM0.80

Above expectations. Malaysia Building Society Bhd (MBSB) posted net profit of RM716.9m, which was above expectations. It came in at 145.7% and 136% of our and consensus' full year estimates respectively. The variance was due to higher than expected write backs in 4QFY19.

PPOP growth contributed to earnings growth. FY19 earnings grew +11.6%yoy as PPOP was resilient with +4.4%yoy expansion. The PPOP growth was due to total income especially in 4QFY19 where went up by +12.1%yoy. This resulted to better FY19 income, by +2.7%yoy. Taking advantage of its banking license meant that it benefitted from treasury income which was one of the contributors.

Lower OPEX supported PPOP. Meanwhile, MBSB's FY19 OPEX fell - 1.3%yoy. We believe that it is commendable that MBSB managed to contain its cost, especially given that it is on an expansionary path. This lead to CI ratio to be maintained below 30% level at 28.4%.

Financing growth affected by asset reorganization. Gross financing expanded by only +2.0%yoy to RM35.9b. This was mainly due to reorganization of MBSB's asset mix. Its personal finance portfolio fell - -2.8%yoy to RM20.0b. This was replaced by higher financing to corporate which grew +7.6%yoy to RM9.6b and to a certain extent house financing which grew +11.7%yoy to RM6.1b. The retail to corporate financing ratio stood at 27:73.

Taking advantage of banking license. We opine that MBSB also took advantage of its banking license to reorganize its deposits. Customer deposits went up +4.4%yoy to RM25.3b, with CASA showed really strong growth to register CASA deposits of RM533.9m as at 4QFY19 from RM302.1m as at 4QFY18. Meanwhile, fixed deposits grew +3.5%yoy to RM24.7b.

Maintain earnings forecast. We are maintaining our earnings forecast despite the over performance. This is due to the fact that the strong showing in 4QFY19 was due to write backs.

Source: MIDF Research - 2 Mar 2020