On 27 March, EPF converted 331.7m MBSB warrants into the company’s ordinary shares. We adjust our valuations to fully reflect MBSB’s diluted share base of about 1.76bn shares, vs a staggered dilution over 5 years previously. We cut our FV to MYR3.05 from MYR3.15, pegged to a 2.1x FY14 BV (3% growth rate, COE of 12% and ROE of 21.9%). Maintain BUY with reduced upside of 11.7%.

Share base enlarges. As of yesterday, MBSB's share capital stood at an estimated 1.62bn due to the ongoing conversion of its warrants and ESOS in the company’s shares. We estimate that this would have retrospectively increased MBSB’s Tier-1 capital from 5.6% to 7.2%. Note that the company is planning a series of capital-raising exercises to raise MYR3bn-MYR4bn to boost its capital adequacy strength.

EPF ups stake. Following the Employees Provident Fund (EPF)’s conversion of a large number of its warrants, the fund’s stake in MBSB rose from about 62.2% (based on MBSB’s 1.28bn share base as at 22 March) to 69.9%. This may potentially invoke a clause in the soon-to-be-implemented Financial Services Act 2012 that requires a holder of >50% of a financial institution to become a financial holding company, but we understand that the fund is seeking exemption from this ruling.

Paring down FV. EPF’s latest conversion of warrants renders our previous valuation, based on a staggered five-year dilution of MBSB’s warrants, no longer applicable. Hence we make a small 1% upward adjustment to our FY13/14 net profit forecasts. However, EPS will be diluted by 18% for FY13 and 9% for FY14. Fully-diluted FV is reduced to MYR3.05 vs MYR3.15 previously, pegged to 2.1x FY14 BV (growth rate 3%, COE 12% and ROE 21.9%). While our new FV suggests that the upside is limited, MBSB's attractive loan and deposit campaigns as well as the company's auto loans tie-up with the Naza Group's Chevrolet franchise may yet give rise to some pleasant surprises in the future.

Source: RHB