Malaysia Building Society Bhd (Feb 3, RM2.20)
Downgrade to neutral from buy at RM2.23 with a revised target price of RM2.16 (from RM2): MBSB reported a net profit of RM83.8 million for 4QFY11, down 11.8% compared with 3QFY11. This was due to: (i) lower other operating income; (ii) lower net interest income; and (iii) higher impairment allowances on loans.
Its full-year FY11 net profit of RM325.4 million (+122.9% year-on-year [y-o-y]) was within our expectation, accounting for 99.5% of our estimate. It translated into return on equity of 43.1% which surpassed its key performance index target of 15% for FY11 and was close to our estimate of 44%.
The stronger net profit for FY11 was mainly due to: (i) higher Islamic banking income driven by a strong growth in personal loan financing (personal financing-i) extended to government servants; and (ii) lower loan impairment for its mortgage loan portfolio.
Non-interest income for FY11 grew 75.9% y-o-y to RM160.3 million. We note that on a quarter-on-quarter basis, its non-interest income decreased by 25.1% to RM30.0 million in 4QFY11.
The group’s total gross loans grew slower at 22.8% compared with 30% on an annualised basis for 3QFY11. MBSB’s gross loans growth exceeded the banking industry average growth rate of 13.6%. This was supported by the growth in the higher yielding personal financing-i to government servants.
We believe that the strong growth rate in personal financing-i was due to banks stopping lending to government servants under the Biro Perkhidmatan Angkasa (BPA) scheme. This has resulted in less competition in the market and MBSB was able to generate substantial growth in personal loan financing by refinancing personal loans from the other financiers through a more attractive financing package.
Over the longer term, we expect the growth in personal financing to taper off. This is already evident in the slowdown of the growth rate of personal loan financing to 118.6% in 4QFY11 from an annualised growth rate of 130% as at September 2011.
As at 4QFY11, the higher yielding personal financing loan represented 48.9%, while mortgage loans and corporate loans were 31.4% and 19.7% respectively of the total gross loans. Management had indicated earlier its plans to rebalance its loan portfolio over the next 12 to 18 months to eventually comprise one third of total loans each for personal loans financing, mortgage loan and corporate loans. The plan to rebalance its loan portfolio is to achieve a more sustainable growth and we believe that implied that the growth of expansion of the personal financing-i is expected to moderate moving forward. On a net basis, loans for FY11 grew 41.8% close to our forecast of 40%.
Overheads rose 35.2% y-o-y to RM160.8 million for 4QFY11. Cost to income ratio (CTI) was lower at 21.1% for 4QFY11 (4QFY10: 27.6%) due to the group’s higher operating income.
Gross impaired loan ratio was 17.6% in 4QFY11 (3QFY11: 23.1%). Net impaired loan ratio fell to 8.8% in FY11 (FY10: 15.7%). We note from the movement in impaired loans, that the writing off of impaired loans has also contributed significantly to the drop in impaired loan ratio. Loan loss coverage stood at 83.5% in 4QFY11 (3QFY11: 80.5%).
Deposits from customers grew 28.9% y-o-y to RM13.5 billion. MBSB’s net loan to deposit ratio rose to 112.4% from 107.1% in 3QFY11.
MBSB has proposed a final dividend of 7% less 25% taxation for FY11. This brings the total dividend to 12% with the inclusion of five interim dividends (less 25% tax) announced earlier. Net dividend of none sen per share (net dividend yield of 4% based on current market price) was slightly than our estimate of 8.3 sen per share.
We make no adjustment to our forecast as earnings were within our expectation. We believe that MBSB’s growth in earnings from the strong expansion in personal loan financing has already been priced in by the market and that the growth in personal financing-i is expected to slow down. The stock has risen 56% since we initiated coverage in September last year and we see limited upside potential with the exception of announcement of corporate exercises.
In its results in 4QFY11, we have noticed moderation in all sources of operating income (net interest income, Islamic banking income and non-interest income). We are now assigning a “neutral” rating on the stock (previously “buy”) with an adjusted target price of RM2.16 from RM2 previously based on the historical average PER of eight times FY12 earnings per share and price-to-book value of 1.8 times. — MIDF Research, Feb 3
This article appeared in The Edge Financial Daily, February 8, 2012.
Downgrade to neutral from buy at RM2.23 with a revised target price of RM2.16 (from RM2): MBSB reported a net profit of RM83.8 million for 4QFY11, down 11.8% compared with 3QFY11. This was due to: (i) lower other operating income; (ii) lower net interest income; and (iii) higher impairment allowances on loans.
Its full-year FY11 net profit of RM325.4 million (+122.9% year-on-year [y-o-y]) was within our expectation, accounting for 99.5% of our estimate. It translated into return on equity of 43.1% which surpassed its key performance index target of 15% for FY11 and was close to our estimate of 44%.
The stronger net profit for FY11 was mainly due to: (i) higher Islamic banking income driven by a strong growth in personal loan financing (personal financing-i) extended to government servants; and (ii) lower loan impairment for its mortgage loan portfolio.
Non-interest income for FY11 grew 75.9% y-o-y to RM160.3 million. We note that on a quarter-on-quarter basis, its non-interest income decreased by 25.1% to RM30.0 million in 4QFY11.
The group’s total gross loans grew slower at 22.8% compared with 30% on an annualised basis for 3QFY11. MBSB’s gross loans growth exceeded the banking industry average growth rate of 13.6%. This was supported by the growth in the higher yielding personal financing-i to government servants.
We believe that the strong growth rate in personal financing-i was due to banks stopping lending to government servants under the Biro Perkhidmatan Angkasa (BPA) scheme. This has resulted in less competition in the market and MBSB was able to generate substantial growth in personal loan financing by refinancing personal loans from the other financiers through a more attractive financing package.
Over the longer term, we expect the growth in personal financing to taper off. This is already evident in the slowdown of the growth rate of personal loan financing to 118.6% in 4QFY11 from an annualised growth rate of 130% as at September 2011.
As at 4QFY11, the higher yielding personal financing loan represented 48.9%, while mortgage loans and corporate loans were 31.4% and 19.7% respectively of the total gross loans. Management had indicated earlier its plans to rebalance its loan portfolio over the next 12 to 18 months to eventually comprise one third of total loans each for personal loans financing, mortgage loan and corporate loans. The plan to rebalance its loan portfolio is to achieve a more sustainable growth and we believe that implied that the growth of expansion of the personal financing-i is expected to moderate moving forward. On a net basis, loans for FY11 grew 41.8% close to our forecast of 40%.
Overheads rose 35.2% y-o-y to RM160.8 million for 4QFY11. Cost to income ratio (CTI) was lower at 21.1% for 4QFY11 (4QFY10: 27.6%) due to the group’s higher operating income.
Gross impaired loan ratio was 17.6% in 4QFY11 (3QFY11: 23.1%). Net impaired loan ratio fell to 8.8% in FY11 (FY10: 15.7%). We note from the movement in impaired loans, that the writing off of impaired loans has also contributed significantly to the drop in impaired loan ratio. Loan loss coverage stood at 83.5% in 4QFY11 (3QFY11: 80.5%).
Deposits from customers grew 28.9% y-o-y to RM13.5 billion. MBSB’s net loan to deposit ratio rose to 112.4% from 107.1% in 3QFY11.
MBSB has proposed a final dividend of 7% less 25% taxation for FY11. This brings the total dividend to 12% with the inclusion of five interim dividends (less 25% tax) announced earlier. Net dividend of none sen per share (net dividend yield of 4% based on current market price) was slightly than our estimate of 8.3 sen per share.
We make no adjustment to our forecast as earnings were within our expectation. We believe that MBSB’s growth in earnings from the strong expansion in personal loan financing has already been priced in by the market and that the growth in personal financing-i is expected to slow down. The stock has risen 56% since we initiated coverage in September last year and we see limited upside potential with the exception of announcement of corporate exercises.
In its results in 4QFY11, we have noticed moderation in all sources of operating income (net interest income, Islamic banking income and non-interest income). We are now assigning a “neutral” rating on the stock (previously “buy”) with an adjusted target price of RM2.16 from RM2 previously based on the historical average PER of eight times FY12 earnings per share and price-to-book value of 1.8 times. — MIDF Research, Feb 3
This article appeared in The Edge Financial Daily, February 8, 2012.
