KUALA LUMPUR: Affin Investment Research is maintaining its reduce rating on Malaysia Building Society Bhd
(MBSB) after it adjusted its price target from RM2.80 to RM2.10.
It said on Tuesday this was based on a dilution effect of 59 sen; cut in terminal growth rate from 5% to 3% of 9 sen).
“We factor-in the dilution impact from the one-for-two renounceable rights issue (RRI) of RM1.47bil, of which comprises the issuance of 889.8 million rights shares at RM1.65 (based on a 28.9% discount to the theoretical ex-rights price on the five-day VWAP price up to Dec 9, 2013).
“In our view, MBSB’s current share price remains overvalued relative to our revised price target of RM2.10, which is based on a lower P/BV multiple of 1.3 times on revised FY14’s ROE of 19%, a lower terminal growth rate of 3.0% and unchanged cost of equity of 15.3%,” it said.
Its previous assumptions were a target P/BV multiple of 1.81x on FY14’s ROE of 23.4% and terminal growth rate of 5%.
Since Bank Negara Malaysia’s macro prudential measures came into effect on July 5, 2013, MBSB had started to exhibit signs of a sharp deceleration in its personal financing (PF-i) portfolio growth, its main income generator (81% of operating income).
This was due to the more stringent measure to cap personal loans tenure to a maximum of 10 years.
As at 3QFY13, the PF-i segment grew by only 2.9% on-quarter while annualised growth was 41.8% vs. its past two years annual growth track record of more than 100%.
Affin Research said despite that, MBSB’s operating profit as at 3QFY13 is still profitable, though growth is plateauing sequentially while credit costs spiked up, impacting profitability.
Notwithstanding management’s counter measures to mitigate the decline in overall group loans growth, a slowdown in future loans growth is inevitable.
“In our view, investors are better-off selling MBSB-OR given the upside of 17%, based on the closing price of MBSB-OR at 54 sen versus MBSB’s ex-right fair value of RM2.10,” it said.
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