MBSB shares, warrants top active list on budget boost, deal rumour

KUALA LUMPUR: Malaysia Building Society Bhd (MBSB) shares and warrants topped Bursa Malaysia’s most active list last Friday, propelled by news of a salary hike for civil servants and rumours of it being a potential takeover target or privatisation play.

A key player in the niche civil service personal loan space, MBSB saw its shares jump as much as 8.84% or 13 sen to RM1.60 intra-day last Friday, after rallying 14% the day before on heavy trading. It ended the week 18.5% higher at RM1.54.

The 39.6 million shares — 3.3% of its capital base — that changed hands made MBSB the second most active counter last Friday, just behind one of its warrants, MBSB-WA, which saw volume touching 79.18 million units.

Another structured call warrant, MBSB-CA, was also among the 10 most active stocks on the local bourse.

MBSB-WA — with a RM1 strike price and four years plus to expiry — closed at 63 sen last Friday, up 34% over two days. Cash-settled MBSB-CA which expires in April 2012 — with a RM1.48 strike price and three warrants to equal one share — closed at 7.5 sen, more than double the 3.5 sen apiece started during the week.

Trading interest in RCE Capital Bhd, another niche financing player, also jumped last week. “Very few players have exposure to the civil servants’ salary increment. RCE could be playing catch-up with MBSB, riding on the feel-good effect after MBSB’s strong performance on Thursday,” a market watcher said.

RCE rose as much as 13.3% to 51 sen intra-day last Friday before ending the week at 47.5 sen, after gaining 8.43% last Thursday.

Upside potential is uncertain for both RCE and MBSB. “Given the current economic climate it is hard to say how civil servants will spend their increment, whether it will spur saving, spending or borrowing.”

All three analysts covering RCE are “neutral” on the stock with target prices ranging between 45 sen and 56 sen, according to Bloomberg data at the time of writing.

OSK Research thinks MBSB should be worth more. The stock’s closing price at RM1.54 last Friday is still a distance away from the RM2.35 apiece valued by OSK. “We believe the civil service personal financing industry is very attractive and continues to see huge growth potential based on a potential pay hike in Budget 2012; Malaysia’s high civil servant-to-population ratio; low risk and turnover rate,” OSK wrote in a note ahead of the tabling of the budget, which proposed higher maximum salaries and annual increments of between 7% and 13% for civil servants who opted to accept the performance-based new civil service remuneration scheme (SBPA).

“Assuming a conservative 5% growth in federal government emoluments for 2012, the potential size of the civil servants’ personal financing market will theoretically expand by another RM4.6 billion.

The company can easily expand its civil servants’ personal loan base by another RM204.8 million given that MBSB is upholding its current market share of 4.5%,” OSK said in the note, reiterating a “buy” recommendation on MBSB.

The rumour mill was in overdrive last week, with speculation that the Employees Provident Fund Board (EPF) is mulling a corporate move on MBSB. Talk is that it would be a privatisation and/or a potential merger with RHB Capital Bhd (RHBCap), which is also controlled by the fund.

“ management tells me there is nothing going on. Furthermore, privatisation is unlikely given that MBSB has become very expensive,” a source said, pointing out that the rumours are not new.

“It is hard to say if these rumours hold any truth,” an analyst with a bank-backed brokerage house said.

The EPF has doubled its stake in MBSB since the beginning of the year, picking up 331.71 million shares on the open market to make it the largest shareholder with a 65.5% equity interest. Permodalan Nasional Bhd (PNB) owns an 11.01% stake in MBSB.

Both government-linked funds have been active on the merger and acquisition scene in recent weeks.

PNB sprang a surprise takeover move on propery developer S P Setia Bhd, and EPF-controlled RHBCap last week sought Bank Negara Malaysia’s approval to start merger negotiations with OSK Holdings Bhd.