Jay's market diary
MBSB: to buy or to avoid
Recently a lot of stocks seem to have spiked up with little fundamentals backing. One of it is MBSB whose share price has rallied from the low of RM0.69 to recent high of about RM0.93, so naturally I am a bit kepoh (busybody) and decided to check it out. But since I’m not really interested in this stock, I decided to do it the lazy way, by pulling out some analyst reports before I decide whether to investigate further. Few quick glance and I know that this is not my stock, at least not for now.
Here’s my findings.
Differing reports
Of the reports I have access to, so far only Affin Hwang has a Sell call at RM0.78. In fact, they downgraded it from Hold. Others mostly have a Hold or Buy with target price around RM1.10 which implies about 20% upside (which is strange as some still choose to put Hold).
A quick glance across the reports and I found some very interesting trend. All analysts unanimously agree that for the next 2 years, the provisions will remain high at above RM700m per annum and the net profit for MBSB is going to be very bad, at around RM200-RM300m per annum. So why are their target prices so different then? Basically it’s all about the P/B multiple they use. The one calling SELL is using 0.65 times while others are using 1 to even 1.6 times P/B. After finding out the root of their differences, I already know who I am leaning to trust.
So how much is a reasonable P/B for banks/quasi-banks?
Honestly I don’t know. Apart from some study on CIMB, I did not really look into banking stocks. But what I do know is that when people value banks, they always look at P/B based on ROE and asset quality. In one of the analyst report, a sector comparison table was shown (save me the work of checking myself). Highest is Public Bank (P/B 2.4, ROE 16%) all the way to the lowest being Affin (P/B 0.5, ROE 4.8%). So what is the expected ROE for MBSB? 3.0%!!! Are you even kidding me? No point checking MBSB asset quality because the fact that they are doing impairment to get up to bank’s standards means that they are far behind in terms of asset quality. And the same analyst gave MBSB a 1.6 times P/B!!! I almost gorged my eyes out. Careful folks, that’s how the so-called analysts screw you with their confusing reports.
To give these analysts the benefit of doubt, I decided to re-read their reports again to see if there are any positives. Sadly no. All I get are more bad news whereby some analysts showed that, even without provisions, the pre-provision profit has been trending down for the past few years. So this means MBSB’s problems lies deeper than just provisions.
But Chua Ma Yu is in?
That’s the puzzling thing. I couldn’t guess what Mr Chua’s game plan is. Historically he doesn’t stay invested in a counter for very long so people wonder if he knows some news that others don’t. Here’s a recent Star Biz interview with Mr Chua. http://www.thestar.com.my/business/business-news/2016/08/06/the-enigmatic-investor/
His main reasonings are MBSB has just done rights issue of RM1.7bil and, assuming 6% return could earn extra RM100m per annum. Besides, there is a possibility that MBSB could become a full-fledged bank and enjoy lower cost of funds. Then it seems like he is in at least for the medium term but is he right?
First of all, of the RM1.7bil, only RM1.1bil is for biz expansion, others are to buffer up liquidity which means return will be very little. 6% rate of return would be about additional RM66m a year. RM66m return over RM1.7bil is less than 4%, doesn’t seem very attractive to me. To become a full-fledged bank, I’m afraid that will have to wait at least 2 more years, which is after they finish impairing and their asset quality is finally up to scratch with the big boys. Do I want to wait for 2 years? Definitely no. And in one of the analyst report they highlighted that the management thinks that the regulatory cost of applying and becoming a bank is too high, so they are not actively pursuing for the license at the moment. Besides, EPF CEO himself said that it’s premature to discuss if MBSB will apply for a banking license. If both the management and major shareholder does not have a timeframe in mind, I don’t think I want to punt and wait it out.
Indonesia M&A?
Personally, I think this is an even bigger joke. If Indonesian banks want to enter Malaysian market, they can expand organically or acquire a target (ideally one with banking license). A company which clearly has asset quality issues and still got more than RM1bil impairment charge coming up doesn’t strike me as an attractive M&A target. Besides, if MBSB needs to carry out the impairment up till 2017 to get up to bank’s level, then isn’t it counterproductive to acquire MBSB and then only get a chance to apply for a banking license after 2017? Might as well the Indonesian banks go alone and get a banking license themselves instead of carrying MBSB as a burden.
Conclusion
With profits likely to remain shitty for the coming quarters, I’m afraid the share price movement is purely based on rumours and speculations. If some good news really comes out (you never know), then yes it may go higher. But once rumours ease, I’m afraid whoever holding the stock will be stuck for some time (possibly until end 2017). RM0.70 to RM0.80 is highly likely.
For me, since I'm late to the game and the rumours and speculations seem to have little basis, and I do not like the long timeframe of waiting for its profits to recover, I am just gonna avoid MBSB and move on to other stocks.
Jay
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Discussions
5 people like this. Showing 45 of 45 comments
personally I don't like it at this price bcos if u see Affin it can trade as low as 0.5 times P/B when your profit is low. 1.15 x 0.5 = 0.58. at this price level, I'm afraid you can only hope if some good news happen, if not price will most likely be flat or go down. it's your own call, keep if you think good news are happening soon, sell if you don't
2016-08-09 19:46
Only shitty Affin called for a sell @ 78 sen, same shitty Affin who overpaid for Hwang DBS.
2016-08-09 19:46
fundamentally I agree with their sell call, technical or newsflow could be otherwise
2016-08-09 19:49
Jay: Thank you for the good writeup. Personally I think they are better financial stocks to invest in as some of the good ones are even trading at <1x P/B.
2016-08-11 15:35
ya loh, I bodoh bodoh buy and hold.lets see in end Aug I laugh die or not.
2016-08-11 17:07
and I bodoh bodoh only look at earning, 4Q14- 393.1M, 1Q15 - 124.3M, 2Q15-85.6M, 3Q15-60M, 4Q15--15.8M, 1Q16-34.M, 2Q16-63.0M. so, it going up mah, so I bodoh bodoh buy loh. smart people like u don't buy punya. hihihi..
2016-08-11 17:10
But that is only one method
I told there is 100 methods to choose from
What happens to the other methods
Can do a more details report and not biased on one method only?
2016-08-11 18:19
haha i3 commenters are so predictable. from the number of comments I already can know whether MBSB go up or down that day
2016-08-11 19:15
anyway no hard feelings, I will try to reply your queries/request. whether you take it or not is your choice
2016-08-11 19:16
firstly I don't need to write bad about a stock to accumulate, and unlike other bloggers I don't think I'm that influential anyway. for MBSB I will probably only revisit it when it end its impairment program (i.e. end 2017) or if it drops below 0.60
2016-08-11 19:18
Jay...you are too good. Analyse i3 comments could come to conclusion of the fundamental of s company and predict the stock price....
2016-08-11 19:21
to whom it may concern, i don't believe you are bodoh, in fact I think u thought u r smart by looking at the figures presented in bloomberg tv and judging from the last 3q, u conveniently conclude that yay MBSB is recovering. how about looking at these set of figures?
pre-provision profit 4Q14- 187.4M, 1Q15 - 259.0M, 2Q15-263.5M, 3Q15-262.4M, 4Q15--267.4M, 1Q16-257.6.M, 2Q16-254.6M
provisions/impairment 4Q14- 100.1M, 1Q15 - 101.3M, 2Q15-134.3M, 3Q15-195.6M, 4Q15-266.1M, 1Q16-218.5M, 2Q16- 179.9M
2016-08-11 19:31
if you can't discern the trend, allow me to decipher for you. if you look further back to 2013, pre-provision profit averages around 300m/q. over the years, it falls to around 250m/q which tells u MBSB's problem lies deeper than provisions alone
2016-08-11 19:32
why last 3 quarter profit improve when ppop is almost the same (declining actually), it's all about provisions amount, recognise less provisions higher profit that simple. so provisions are coming down? hooray! oops, management just told the whole world that they will recognise another 370m for 2016 (185m/q) and 740m for 2017 (180m/q)
2016-08-11 19:35
so ppop no improving, provisions will still be at a level comparable to 2Q16, where is your profit turnaround? after 2017 maybe. if profit remains at 2Q16 level (about 70m/q), that gives u an ROE of about 4%. this is even lower than all the local banks and their lowest P/B is 0.5 times. so is MBSB special?
2016-08-11 19:40
maybe I'm not sophisticated enough to know 100 valuation methods (i only knew a few) but anyone who has analyse banks/FIs will know that P/B is the prevalent method, whether you are from Goldman Sachs or Ah Kow Consultancy. Just to entertain you, DCF, EV/EBITDA, APV, cap rate, RNAV, EVA, residual value all not suitable for banks or MBSB. only possible one left is PE. estimated eps is around 4.8c, at current price 0.90 is 18.8 times PE. public bank PE is 14.6 times, wahahaha, MBSB is so special it warrants a higher PE than public bank (the well known most expensive bank in Malaysia)
2016-08-11 19:49
so maybe you can enlighten me with the other 90+ valuation methods I didn't cover and how they point out that MBSB is a good buy at this level?
2016-08-11 19:50
seriously guys if you want to argue that MBSB got insider news or technical breakout etc. I'll leave it to you. if you want to discuss fundamentals can you even try to do some homework? I'm not perfect but at least I'm diligent and I don't write or comment without reasonable basis or logic. I welcome constructive comments or criticisms but the least you can do is to point out where and why my arguments are wrong. but so far I don't see any....
2016-08-11 20:03
I believe I have made my point on MBSB, so I'll move on until someone can give a constructive comment or criticism
2016-08-11 20:08
If public bank was so good why you don't write good article about it and let the forumer rate it? And public bank is cheaper now?
2016-08-12 13:37
There is so many item in the annual report and you cannot come up with more than one valuation method, something show you didn't study the report hard enough. No time to entertain lazy people
2016-08-12 13:44
Good article ! But you need to factor in that MBSB is doing impairment to be in compliance with current accounting standard. Their actual impairment on loan losses is only 25% of total impairment.
2016-08-12 14:00
haih, the fact that operationally public bank is the best bank in malaysia is so undisputed even their rivals acknowledge it. it just shows again u don't even know some simple obvious facts. the only criticism people can find about public bank is that they are always so expensive, at their peak 3.5 times P/B, even now when whole industry a bit lacky also 2.3 times P/B
2016-08-12 14:29
just to share with others who are interested in banks (by now I know some people are just not interested in researching), Public Bank's ROE is 16% vs industry average about 10%, cost-to-income ~30% vs industry ~50%, gross impairment ~0.5% vs ~1.6%, loan loss cover >200% vs ~100%
2016-08-12 14:34
If dunno how to read report don't give tp 78 cents
Also 69 cents, sound ridiculous after result out
Did you mentioned you has no idea how to valuate a bank?
So how are you gonna advice sell call if you had little knowledge
Fainted*
2016-08-12 14:35
so public is not just better, they are miles better. only negative their valuation also miles higher, 2.3 times vs others ~1 time. so does MBSB rank better than public or other local banks? ROE and asset quality ratios would have shown a clear picture (unless u turn a blind eye on them)
2016-08-12 14:36
I'm issuing a public challenge to PlsGiveBonus (pls don't chicken out), since I'm the lazy bum (who spent time researching and writing articles while u comment), pls enlighten me and the wider public of at least 10 of your so called 100 valuation methods based on info from the annual report and how MBSB ranks better against other banks/FIs in Malaysia in these valuation methods. tp 78 cents is Affin's, my tp is below 60 (based on 0.5 times P/B based on the cheapest bank P/B). the fact is MBSB's ROE is so low actually they don't even deserve 0.5 times. that's my basis, how do u get your tp of >1.00 or >2.00? plucked from the sky?
2016-08-12 14:44
@pekor thanks, but that only means MBSB has got away easy last time. now if they want to close the gap with banks, they have to up their standards. it's the same for banks, provisions doesn't mean the loans are hopeless but it means there are signs of stress. banks do routinely reclassify impaired loans that are performing back to performing loans. if I value MBSB, I would need to put a discount on them compared to other bank's P/B bcos asset quality, accounting standards etc. MBSB is below par compared to banks. which is also the reason why I don't value MBSB in my article cos it would be even lower than Affin's tp and it will piss even more people. calling a spade a spade seems so out of trend nowadays
2016-08-12 14:53
Jay openly ask for lesson
I am too busy to adding my position in the counter
Anyone care to entertain him
2016-08-12 15:09
just to share with interested audience, MBSB ROE 4%, cost-to-income 33% (bcos much lesser branch costs), gross impairment >7%, loan loss cover 97%. for those who hold MBSB and wishfully hope it will go up, pls don't challenge me into releasing more damaging facts on your company. financially and operationally MBSB is just not there until they finish their 'close the gap' exercise, i.e. end 2017
2016-08-12 15:12
pak pak pak..... I see a big fat chicken. of course humble people will always seek for lesson bcos we accept that we have much more to learn. like what's the reason why chicken cross the road? ladies and gentlemen if u want to know the answer, look no further than asking PlsGiveBonus why he/she cross the road?
2016-08-12 15:20
people who have read my articles before would know I am always open to constructive inputs, I even amend my articles to incorporate those views. so whoever has better ideas I am more than happy to learn from them. unless they are chicken, u know, language a bit difficult...
2016-08-12 15:23
Jay so smart me is chicken little cannot give him lesson
Later he will call me chicken again
Run!
2016-08-12 17:55
Chicken language smart person like jay cannot understand
Need to learn human language first
2016-08-12 18:01
My chicken methods consisted of 100 valuations
It show the bank is severely undervalued, chicken meat price must go up as soon as possible, 78 out of 100 respondents agreed the valuation work.
Chicken methods only accessible by chicken and it is classified information only chicken can understand the language
2016-08-12 18:30
today's the edge weekly there's a nice chart that shows the ROE/PB correlation among Malaysian banks/FIs. There is a clear linear correlation except one outlier. No prize in guessing it right... (answer is MBSB for those who hate riddles)
2016-08-13 18:16
it's not impossible. remember the heydays of sumatec or ifca? for any counter which its price run ahead of its fundamentals, if you can time it right and exit before it falls then you will earn. if not then you will be stuck...
2016-08-13 23:00
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Talk like this you win liao lo
2016-08-09 17:15