• We initiate coverage on Malaysia Building Society Berhad (MBSB) with a HOLD call, and a GGM-derived TP of RM0.80.

• We anticipate 2024F core PATAMI could double to RM306mn, with earnings growth momentum expected to continue over 2025F-26F, driven by higher loan growth, improvement in cost-to-income ratio (CIR) and expected credit loss (ECL).

• Although MBSB's GIFR (gross impaired financing rate) of 7.27% in 2023 remained above the banking industry average, we expect it to gradually improve. Additionally, we believe that the management's target for a 2% net profit margin (NPM) in 2024 is achievable, given their strategy to reduce reliance on higher-cost wholesale treasury deposits and shift toward retail deposits.

Core PATAMI to Double in 2024F, with Further Growth in 2025F-26F

We anticipate MBSB’s 2024F core PATAMI to double to RM306mn from RM137mn in 2023 (excluding the one-off MIDF acquisition gain). Growth momentum is expected to continue, with core PATAMI projected to rise by 57% YoY in 2025F and 15% YoY in 2026F. This growth will be driven by robust loan growth, improvement in CIR and lower ECL due to strengthening in economic conditions.

Improvement in Asset Quality Expected Ahead

We expect MBSB's gross impaired financing rate (GIFR) to improve gradually from 7.27% in 2023 to 6.5%/6.0%/5.5% for 2024F/25F/26F, driven by management commitment in addressing significant impaired accounts while enhancing profitability through quality loans and robust risk management practices in 2024 to 5% in 2026.

2024F NPM Target of 2% is Achievable

MBSB’s net profit margin (NPM) fell to 1.7% in 2023 from 2.9% in 2022 due to rising funding costs despite hike in OPR. However, we expect NPM to improve over 2024-26F period to 2.04%-2.14%, driven by improvement in CASA deposits as well as management effort to reduce the reliance on higher-cost on wholesale treasury deposits and shift towards retail deposits. Hence, we believe management 2024F target for NPM of 2% is achievable.

Initiate with a HOLD; TP of RM0.80

We initiate coverage on MBSB with a HOLD rating, based on a GGMderived TP of RM0.80 (COE: 7.8%, Sustainable ROE: 5.1%). Valuation wise, we believe the current share price already price-in MBSB’s business prospects, with its P/E trading slightly around the 8-year mean at 15x on a 12-month forward basis. On a P/BV basis, the stock is trading +1SD above its 8-year mean of 0.55x. Upside risk: higher dividend payout (>50% of our assumption), OPR maintains/cuts, a stronger-than-expected recovery in GIF and NPM, and ROE meeting the 2024F target. Downside risk: lower loan growth, an increase in GIFR, and a decline in NPM and ROE

Source: BIMB Securities Research - 11 Nov 2024