Stock Focus Analysts upgrade MBSB ratings after better-than-expected 2Q results

by **Cals** Sat 16 Aug 2014, 00:35

Stock Focus Analysts upgrade MBSB ratings after better-than-expected 2Q results

Business & Markets 2014

Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com

Friday, 15 August 2014 12:21

KUALA LUMPUR (Aug 15): Analysts have upgraded their ratings on Malaysian Building Society Bhd (MBSB) after the group posted better-than-expected results for its second quarter ended June 30 (2QFY14).

MBSB posted a net profit of RM232.86 million, rising 41% from RM165.11 million a year earlier, as net income increased while allowance for bad loans fell, it said in a filing to Bursa Malaysia yesterday.

Quarterly revenue rose 9% year-on-year (y-o-y) to RM672.08 million from RM614.3 million.

For the six months ended June 30 (1HFY14), MBSB’s net profit rose 29.7% to RM429.56 million from RM331.25 million in 1HFY13, while revenue climbed 18.3% to RM1.34 billion from RM1.18 billion.

In a note today, Affin Investment Bank Bhd (Affin IB) attributed MBSB’s improved net profit for 1HFY14 to a reversal in credit cost and also higher operating income, which rose 8% y-o-y.

“MBSB beat expectations once again, with 1HFY14 net profit accounting for close to 70% of Affin IB’s (RM616.1m) and consensus (RM627m) FY14 estimate owing to lower impaired loan allowances,” said the research house.

Affin IB further said that MBSB’s profits remained “decent” despite Bank Negara Malaysia’s tightening measures, with its fund-based income growing 7.5% y-o-y.

Meanwhile, the hike in the overnight policy rate to 3.25% is not expected to affect MBSB immediately, due to the long-term nature of its deposit base, while other Asset-Liability Management (ALM) strategies carried out by the management will improve MBSB’s performance.

“We upgrade the stock from ‘reduce’ to ‘add’, as we believe that the stock price has bottomed-out on the back of newsflow of the upcoming merger and the creation of a mega Islamic bank,” said Affin IB, adding that its target price (TP) on the group has been increased to RM2.60 from RM2.10.

Similarly, MBSB’s performance had also exceeded forecasts of RHB Research Institute Sdn Bhd, which was attributed to the lower-than-expected loan impairment allowance.

The research house has since revised down its loan impairment allowances, thus raising its net profit projections for FY14 and FY15 by 14% and 7.5% respectively.

“In our view, positive takeaways from the 2Q results include stable asset quality, improved non-interest income contribution sequentially as well as tight cost control,” the research house said.

Despite MBSB’s improvement, RHB Research noted that there are still certain operational gaps that need to be dealt with. However, the management of MBSB said that the gaps would not be a problem.

“Capital is not expected to be a major concern as well. Management estimates that MBSB has sufficient capital to support risk-weighted assets growth of another RM2 billion,” said the research house.

RHB Research maintained its “buy” call, but has upgraded its TP on the stock to RM2.80 from RM2.60, in line with its earnings revisions.

At 11.08am, MBSB fell 3 sen or 1.2% to RM2.38, with some 1.36 million shares done.