Malaysia Building Society Bhd (Jan 27, RM2.18)
Maintain market perform at RM2.24 with fair value of RM1.85: MBSB is expected to release its 4QFY11 results in early February. Our full-year pre-tax profit estimate stands at RM422 million, slightly ahead of the pre-tax profit of at least RM400 million that MBSB CEO reportedly said was achievable.
However, relative to MBSB’s 3QFY11 results, our 2011 forecast may appear on the conservative side as it implies that 4Q net profit would contract about 20% quarter-on-quarter (+480% year-on-year [y-o-y]) mainly due to net interest margin (NIM) compression and higher loan impairment charges.
We have assumed full-year gross loan growth of 30% y-o-y, in line with the nine-month annualised figure. While any surprises here (positive or otherwise) are unlikely to impact overall net profit too significantly, two areas that may are NIM and loan impairment allowances. Our full-year NIM assumption of 3.9% is lower than MBSB’s nine-month NIM of 4% as we factor in the repricing of fixed deposits and dilution in asset yields.
NIM may surprise on the upside if the growth in higher yielding personal financing stays robust and/or growth in the other segments of the loan portfolio is slower (against personal financing). As for loan impairment allowance, we have assumed this will continue to rise on the back of the strong loan growth and to beef up coverage levels (2011F: 83% against 2010: 77.2%).
We expect a final gross dividend per share (DPS) of 5.5 sen (4QFY10: nine sen), which would bring the full-year gross DPS to 10.5 sen (FY10: nine sen). This would translate to a net payout ratio of about 30%, in line with the dividend payout guidance of at least 30%.
Looking ahead to 2012, our pre-tax profit projection of RM499 million (+18% y-o-y) is in line with the targeted RM500 million mark mentioned by the CEO. This is underpinned by loan growth assumption of 17.5% and lower credit cost of 138 basis points (2011F: 162 bps), partly offset by NIM contraction of seven bps and higher cost-income ratio of 22% (2011F: 18%).
MBSB intends to diversify its loan book mix to roughly equal contribution from personal financing, mortgages and corporates, but this will also dilute NIMs. However, if the growth in personal financing continues to outpace the other segments, NIMs may turn out to be stronger than expected leading to positive earnings surprises.
The risks include: (i) adverse regulatory changes; (ii) slower than expected loan growth; (iii) weaker than expected NIMs; (iv) deterioration in asset quality; and (v) high loan-deposit ratio.
We maintain our fair value of RM1.85 (target price-earnings ratio of eight times ascribed to MBSB’s fully-diluted 2012 earnings per share) and “market perform” call. — RHB Research, Jan 27
This article appeared in The Edge Financial Daily, January 30, 2012.
Maintain market perform at RM2.24 with fair value of RM1.85: MBSB is expected to release its 4QFY11 results in early February. Our full-year pre-tax profit estimate stands at RM422 million, slightly ahead of the pre-tax profit of at least RM400 million that MBSB CEO reportedly said was achievable.
However, relative to MBSB’s 3QFY11 results, our 2011 forecast may appear on the conservative side as it implies that 4Q net profit would contract about 20% quarter-on-quarter (+480% year-on-year [y-o-y]) mainly due to net interest margin (NIM) compression and higher loan impairment charges.
We have assumed full-year gross loan growth of 30% y-o-y, in line with the nine-month annualised figure. While any surprises here (positive or otherwise) are unlikely to impact overall net profit too significantly, two areas that may are NIM and loan impairment allowances. Our full-year NIM assumption of 3.9% is lower than MBSB’s nine-month NIM of 4% as we factor in the repricing of fixed deposits and dilution in asset yields.
NIM may surprise on the upside if the growth in higher yielding personal financing stays robust and/or growth in the other segments of the loan portfolio is slower (against personal financing). As for loan impairment allowance, we have assumed this will continue to rise on the back of the strong loan growth and to beef up coverage levels (2011F: 83% against 2010: 77.2%).
We expect a final gross dividend per share (DPS) of 5.5 sen (4QFY10: nine sen), which would bring the full-year gross DPS to 10.5 sen (FY10: nine sen). This would translate to a net payout ratio of about 30%, in line with the dividend payout guidance of at least 30%.
Looking ahead to 2012, our pre-tax profit projection of RM499 million (+18% y-o-y) is in line with the targeted RM500 million mark mentioned by the CEO. This is underpinned by loan growth assumption of 17.5% and lower credit cost of 138 basis points (2011F: 162 bps), partly offset by NIM contraction of seven bps and higher cost-income ratio of 22% (2011F: 18%).
MBSB intends to diversify its loan book mix to roughly equal contribution from personal financing, mortgages and corporates, but this will also dilute NIMs. However, if the growth in personal financing continues to outpace the other segments, NIMs may turn out to be stronger than expected leading to positive earnings surprises.
The risks include: (i) adverse regulatory changes; (ii) slower than expected loan growth; (iii) weaker than expected NIMs; (iv) deterioration in asset quality; and (v) high loan-deposit ratio.
We maintain our fair value of RM1.85 (target price-earnings ratio of eight times ascribed to MBSB’s fully-diluted 2012 earnings per share) and “market perform” call. — RHB Research, Jan 27
This article appeared in The Edge Financial Daily, January 30, 2012.
