KEY INVESTMENT HIGHLIGHTS

• Results were below expectation as MBSB posted net loss

• Net loss was due to higher ECL

• PPOP was within expectations

• Gross financing declined marginally but deposits was stable

• Earnings revised downwards by -63.5%/-37.8%/-21.8% for FY20/FY21/FY22

• Maintain NEUTRAL with revised TP of RM0.70 (from RM0.80) as we rollover our valuation to FY21

Below expectations. Malaysia Building Society Bhd (MBSB) 1QFY20 results were below expectations as it posted net loss of -RM73.3m.

Turned red from higher ECL. The main attributor for the net loss in the quarter was the higher ECL. Provisions went up by +90.7%yoy due to an increase in Stage 2 and Stage 3 financing. MBSB’s two retail financing portfolios also suffered from Stages 2 and 3 deteriorations due to legacy accounts. GIF ratio went up +21bp to 5.51%.

PPOP within expectations. For 1QFY20, PPOP came in RM252.8m. This represented a -6.0%yoy decline. Main contributor was the drop in total income, where it fell -0.7%yoy. The OPR cuts and flattish gross financing were the factors that dragged total income down.

Gross financing was relatively flat. MBSB’s gross financing book declined marginally by -0.1%yoy to RM35.4b. Its personal financing portfolio, which is contributes the most, fell -3.2%yoy to RM19.8b as there were lower disbursement and in our opinion cautious sentiment from would-be borrowers. However, this was moderated by housing portfolio where both Islamic and conventional combined grew +11.5%yoy to RM6.2b. Corporate financing grew +0.2%yoy to RM9.3b.

Stable deposits growth. Total deposits grew +2.2%yoy to RM26.8b. This was led by CASA deposits which more than tripled, as it came to RM871.8m from RM250.4m as at 1QFY19. Meanwhile, fixed deposits decreased -0.2%yoy to RM25.9b. We opine that MBSB also took advantage of its banking license to reorganize its deposits.

Earnings revision. We are revising downwards our earnings forecast for FY20/FY21/FY22 by -63.5%/-37.8%/-21.8% as we take into account the higher ECL.

Valuation and recommendation. We recognize that the operating environment is currently tough. We expect ECL and GIF ratio will spike up in the coming quarters, especially post loan moratorium. Nevertheless, we expect MBSB to be stable operationally as PPOP came in within our expectation. All-in, we maintain our NEUTRAL call, with a revised TP of RM0.70 as we rollover our valuation to FY21. Our TP is derived by pegging its FY21 BPS to PBV multiple of 0.5x.

Source: MIDF Research - 26 Jun 2020