MBSB stock: Further upside seen

KUALA LUMPUR: Analysts see further upside to shares of Malaysia Building Society Bhd (MBSB), which turned in a solid financial performance in the second quarter as it earned more from loans.

The financial institution, which counts the Employees Provident Fund as its biggest shareholder with a 65.5 per cent stake, saw net profit come in at RM78.2 million, which was 58 per cent higher than a year ago and 14.5 higher than the preceding quarter.

This brought its first half net profit to RM146.5 million, a 58 per cent increase from a year ago. It beat analysts' expectations by about 12 per cent.

The strong profit growth was largely driven by a steep rise in Islamic banking income, supported by stronger demand for personal financing among civil servants.

Chief executive officer Datuk Ahmad Zaini Othman told analysts at a briefing yesterday that he expects MBSB to maintain its performance in the second half of the year, barring unexpected circumstances.

Housing loans used to be the group's traditional area of strength, but going foward, Ahmad Zaini said the major driver for loans would be personal loans and corporate loans would also catch up.

Personal loans currently account for about 40 per cent of MBSB's overall loans, followed by housing loans (34 per cent) and corporate loans (25 per cent).

The company plans to launch more new retail products this year, such as hire purchase loans and Islamic credit cards, to diversify its revenue.

MBSB's share price shot up by 12 sen, or 7.7 per cent, to RM1.68 yesterday on the back of the strong earnings.

Its warrants rose by 7 sen to 76 sen, making them the third most actively traded counter in the stock market.

"The latest second quarter results confirm our belief that MBSB is still deeply undervalued," AmResearch Sdn Bhd wrote in a note yesterday.

It maintained its "buy" call and fair value of RM2.90 on the stock.

Among its re-rating catalysts would be higher-than-expected loan growth and margins, a sustainably high return on equity of over 20 per cent and confirmation of a dividend payout ratio of at least 30 per cent, AmResearch said.

MBSB, in which Permodalan Nasional Bhd also has a 11.9 per cent stake, had surprised investors with a gross dividend of 5 sen a share. It was the first time in recent years that it declared an interim dividend.

OSK Research, which maintained its "buy" call and fair value of RM2.35 on the stock, sees the company making a full-year net profit of RM269.2 million.

"Going forward, we believe the company is willing to pay out more dividends in the future to reward its shareholders. As such, we are adjusting our dividend payout from 32 per cent to 40 per cent," it said.