Malaysian Building Society Bhd
(Sept 19, RM1.38)
Initiating coverage at RM1.43 with buy call and target price of RM1.84: MBSB’s change in business direction has resulted in a turnaround in performance. Compound annual growth
rate (CAGR) for net net profit from FY08 to FY10 was 61.4%. The strong growth in personal loan financing extended to government servants as opposed to its past focus on property development financing made the difference.
MBSB’s loan portfolio comprises a mix of personal, mortgage and corporate loans representing 40%, 34% and 25% as at 2QFY11. Loans grew strongly at a CAGR of 16.3% over
FY08 to FY10. Key driver was personal loan financing for government servants. Growth of mortgage loans is expected to be flat for FY11 as the group is in the process of
restructuring its mortgage loan portfolio.
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Loan to deposit (LD) ratio as at 2QFY11 stood at 109%. It improved compared with 254.35% in 1999. Since the Ministry of Finance’s approval in 2004, fixed deposits of government and statutory bodies are allowed be placed with MBSB. Year-to-date, customer deposits have grown 150%. MBSB has been securitising receivables (selling mortgage loans to Cagamas Bhd) to raise funds. It is in the progress of issuing sukuk securities to support the growth of its loan book.
Both impaired loan ratios (gross and net) gradually declined. For 2QFY11, gross impaired and net impaired loan ratio stood at 12.2% and 26.3% against FY08 of 48.3% and 23.2%.
With stronger risk management in place and a focus on growing personal loan financing which has a low impairment risk, we expect asset quality to improve further and are projecting a gross impaired loan ratio of 25% for FY11.
Cost-to-income came off a high of 46.3% in 2008 to 18.3% in 2QFY11, lower than the average CTI of 47% in 2QCY11 for banking stocks under our coverage. The improvement was mainly due to stronger growth in Islamic banking income over the past two years.
We believe CTI will not rise substantially as overheads, in particular personnel cost, will be kept low. Expansion of its retail and corporate loans will be done through strategic tie-ups with agents instead of recruitment of additional personnel with its limited branches. We project a CTI of 20% and 22% for FY11 and FY12.
We initiate coverage with a “buy” at a target price of RM1.84. Valuation is undemanding with price-earnings ratio of 8 times (one standard deviation below five-year historical
average PER) on a forecast earnings per share of 23 sen for FY12. Our fair value for the stock at RM1.84 equates to 1.8 times our forecast book value for FY12. — MIDF Research,
Sept 19
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