Malaysia Building Society - Needing More Bricks

Date: 
2024-02-29
Firm: 
KENANGA
Stock: 
Price Target: 
0.59
Price Call: 
SELL
Last Price: 
0.765
Upside/Downside: 
-0.175 (22.88%)

We maintain our GGM-derived PBV TP of RM0.59 (COE: 9.2%, TG: 2.0%, ROE: 6.0%) and UNDERPERFORM call. Post briefing, the group had detailed in FY24 guidance to pave the way for a stronger 8% ROE by FY26. However, given that FY23 earnings were bolstered by one-offs, we reckon greater strides could be needed for its ambitions to materialise.

We came away from MBSB’s 4QFY23 results briefing with the key takeaways as follows:

- 9% financing growth to strengthen pipelines. The group’s near-term priority to build its loans books may be more driven by commercial accounts that could fetch higher margins which would also ease the group’s struggle with margins. While the group had also reported a 9% financing growth in its RM42b FY23 books, it was dissected that it included a RM1.9b injection from MIDF’s own portfolio, indicating that organic growth only amounted to 4%.

- NIMs to hold back to 2.00%. FY23 NIMs of 1.79% fell short of its 2% target. MBSB is known to be adversely affected by OPR hikes given its less optimised fixed loans and deposits books, with FY23 have also borne pains for accounting adjustments under Rule 78.

The group guided the overall impact from these adjustments to be RM250m which are not likely to repeat from FY24 onwards, which should provide some relief to margins in the immediate term. In addition to strategies to acquire more CASA, this could support a NIMs of 2% for FY24.

- Building better profiles to optimise books. With regards to deposits, the group added that the unfavourable repricing seen would have mostly been felt in FY23. That said, it strives to expand its CASA deposits by corporate clients as they generally come at a lower funding cost. In 4QFY23, the group had gained a CASA proportion of 7.1% (4QFY22: 6.2%) with a corporate : retail mix of 53:47.

- Cleaning up asset quality. Excluding its ihsan-I books, MBSB’s gross impaired financing stood at 6.6%, which was also above its aspired range of 4%-5%. This target is reiterated into FY24 as the group sees opportunities in disposing several long-term NPLs. On the flipside, with up to 40% of its impaired financing being collateralised, the group believes its financing loss coverage ratio of 54.3% is sufficient.

Forecasts. Relatively unchanged.

Valuations. We also maintain our TP of RM0.59 based on an unchanged GGM-derived PBV of 0.42x (COE: 9.2%, TG: 2.0%, ROE: 5.0%) on FY25F BVPS of RM1.41. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. Although the merger with MIDF is complete, the synergies between the two may only be extracted in the longer term.

Additionally, the group may also require greater efforts to reoptimize its funding mix especially given its low CASA levels, which may make it less attractive than its peers. Maintain UNDERPERFORM.

Risks to our call include: (i) lower-than-expected margin squeeze, (ii) higher-than-expected loans growth, (iii) slower-than-expected deterioration in asset quality, (iv) further gains in capital market activities, (v) favourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 29 Feb 2024

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