Malaysia Building Society (MBSB) informed Bursa Malaysia yesterday that it has entered into a conditional share sale agreement with Ken Holdings Bhd for the disposal of its wholly-owned subsidiary (Gadini SB) for a purchase consideration of RM56.2m.

Details of the proposed disposal. The proposal will involve the disposal of 3.97m ordinary shares of RM1.00 each held by MBSB in Gadini SB, representing the entire issued and paid-up share capital of the latter for a total of RM56.2m. Gadini holds four properties in the town and district of Johor Bahru.

2bps potential dividend yield upside based on our projection. The proposed disposal is in line with the group's objective to dispose of its non-income generating assets, foreclosed properties and properties acquired previously. The proposed sale is expected to result in a gain on disposal of some RM6.75m, which will translate into an increase in its earnings per share by about 0.48 sen, based on our financial model (shares outstanding: 1.42bn shares). Assuming that the company decides to reward shareholders by paying out this gain in full as dividend, the stock's gross dividend yield would increase from 5.5% to 5.7%, based on our projections. We are keeping our FY12-13 forecasts unchanged as the disposal is a non-core item.

Maintain BUY. After disposing of Gadini, MBSB would still own nine properties with an estimated book value of RM238.4m, which it can monetize (based on its 2011 annual report). Going forward, we think that there are still many opportunities for MBSB to monetize the properties it currently owns. Our fair value for the stock is RM2.70, pegged to 2.6x PBV, assuming a 4.0% growth rate, COE of 11.0% and ROE of 23.7%.

Source: OSK