The  company’s  1HFY13  core  profit  of  MYR330.8m  exceeded expectations. The near two-fold surge in core profit was mainly boosted by  improvements  in  personal  financing  (PF-i)  and  NIMs.  We  lift  our FY13/14  EPS  forecasts  by  10%/13%  on  renewed  confidence  in  the company’s strategy. Upgrade to BUY, with our FV revised to MYR3.70. 

-  Profit  nearly  doubles.  Malaysian  Building  Society  (MBSB)’s 1HFY13 earnings  made  up  57%  of  our  and  58%  of  consensus’  FY13  forecasts respectively. The group’s core earnings growth (+93.6% y-o-y, -0.9% q-o-q)  trounced  its  pre-provision  operating  profit  (PPOP)  growth  (+20.6% y-o-y, 19.0% q-o-q), thanks to a 51.4% y-o-y drop in loan loss provision (LLP)).  Interest  income  from  Islamic  financing  surged  81.2%  y-o-y  on increased PF-i volume, and a 4.4% rise in net interest margins (NIMs). 

- No  blip  in  loans  growth  despite  tightening  measures.  Gross  loans jumped  28.1%  y-o-y  and  8.8%  q-o-q  as  the  PF-i  segment  expanded 46.1% y-o-y and 13.1% q-o-q. PF-i now comprises 72% of MBSB’ loans book. 1H net loans chalked up a robust 20.3% growth in the absence of cooling  measures.  (Bank  Negara’s curbs on household  debt  only  took place  in  July.)  YTD,  the  group  has  disbursed  loans  totaling  about MYR9.8bn vs the FY13 target of MYR14bn and FY12’s MYR12bn.  

- Rolling out strategies. The company is in the midst of: (i) venturing into private sector PF-i, (ii) offering floating-rate loans for the mortgages and PF-i segments, and (iii) securing more mandates for corporate segment financing.  The    PF-i segment will  remain  its  biggest  growth driver  given the huge potential in the private sector market, although the competition and  risks  are  equally  significant.  Although  MBSB  has  not  provided guidance  on  its  new  growth  targets  or  their  timeline,  we  are  still reassured  by  the  company’s  new  strategies.  Thus  we  upgrade  our FY13/14 loans growth to 29%/15% respectively (please see Page 7).

- Lifting FV to MYR3.70. We upgrade our FY13/FY14 earnings forecasts by  10%/13%.  While  waiting  for  the  group’s strategies to unfold,  we upgrade the stock to BUY, with a new MYR3.70 FV (from MYR3.10). Our new assumption is premised on 2.3x FY14 P/BV (3% growth rate, COE of  13%  and  ROE  of  27.4%)  vs  our  previous  24.8%  ROE.  MBSB’s annualized FY13 ROE of 38% was significantly above its 15% target. No dividends were declared for this quarter.

Source: RHB