We  upgrade  MBSB  to  BUY  on  account  of  our  positive  outlook  on  the revival  in  its  corporate  loan  book  momentum  and  well  controlled expense  ratio.  These  factors  should  mitigate  the  more muted  potential of  its  retail  portfolio  and  personal  financing  (PF)  business.  This  has been  priced  in  as  the  stock  price  has  shed  10%  in  the  past  3  months. Our new MYR3.40 FV implies an ex-rights FV of MYR3.10.  

- More  corporate  deals  to  come. We  are  positive  on  the  momentum  of MBSB’s corporate business, supported by an enhanced business team. This  will  help  mitigate  the  growth  moderation  in  its  retail  portfolio.  The company  disbursed  some  MYR0.5bn  in  syndicated  loans  for  purposes that include infrastructure projects. Its corporate projects, of which many are  with  reputable  property  developers,  is  gaining  momentum,  having disbursed about MYR0.8bn YTD. This was originally MBSB’s bread-and-butter business since incorporation. It is aiming for a 60:20:20 ratio for its PF:mortgage:corporate portfolio vs the current 72:16:12.

- Synergies  will  flow  to  fee  income  and  deposits.  While  corporate loans  garner  lower  yields  vis-à-vis  personal  financing  (PF),  this segment’s growth  may  provide  more  avenues  to  boost  fee  income  and deposits.  This  trend  is  line  with  our  forecast  of  a  higher  FY14F  fee income growth (+90.4%) and our expectations of a higher 2-year forward deposit CAGR (+26.9%) vs that for its financing portfolio (+20.7%).  This was evidenced in the company’s latest 3Q13 results.

- Raising  loans  growth,  lower  cost-to-income  ratio  (CIR).  We  are raising  our  FY13F/FY14F  loans  growth  targets  to  24.4%/17.2%  from 22.4%/16.1%  due  to  a  higher  portion  of  corporate  loans.  However,  for the  same  reason,  we  are  lowering  our  net  interest  income  forecasts owing to lower NIM estimates and a reduced proportion of PF. We also lower  our  FY13F/FY14F  CIR  assumptions  to  20.3%/19.8%  from 24.8%/26.3% as MBSB has been able to rein in expenses. The net effect is a 3.4%/7.2% upward revision in FY13F/FY14F net profits. (Please see Page 2 for further details).  

- BUY, on renewed diversification efforts. We upgrade our call to BUY (from  NEUTRAL),  with  our  FV  raised  to  MYR3.40  (from  MYR3.10), pegged  to  2.2x  FY14F  P/BV  (3.0%  growth,  14.3%  COE,  27.2%  ROE). Our ex-rights FV is also adjusted to MYR3.10 from MYR2.92.

Source: RHB