KUALA LUMPUR: Kenanga Research is retaining its outperform call for Malaysia Building Society Bhd
(MBSB) but with a lower target price (TP) of RM1.25 from RM1.45. The last traded price was 97 sen.
It said on Wednesday the 9M18 core earnings came in line, as impairment allowances fell as expected.
“Normalisation of credit costs are expected for FY19 which will underpin bottom-line ahead. However, with the impending economic slowdown ahead, we reduce our TP to RM1.25 but outperform call maintained due to still attractive valuations,” it said.
Kenanga Research said MBSB’s 9M18 core net profit (CNP) of RM369mil was in line with estimates, accounting for 72%/60% of its/consensus full-year estimates.
The 9M18 CNP has been adjusted for write-back of impairment allowances on loans and financing amounting to RM155.4mil in 1Q18 (due to the then prudent impairment allowances for the new accounting standard MFRS9).
MBSB’s 9M18 earnings surged 79% underpinned by lower impairment allowances falling by 94% to RM29mil, as top-line fell 5% to RM1.05bil.
Falling top-line was dragged by declining fund-based income, down by 15% to RM177mil while Islamic banking income fell 5% to RM828mil. Loans saw a slight drag (-1% vs. expectation/guidance of 3%-4%) mostly coming from a decline in personal financing (PF) (-7%) while corporate loans & financing surged ahead (+20%) to RM9.2bil.
“NIM compression of 20bps to 3.2% (as higher yielding loans/financing dissipates) was higher than our expectation of 3bps. On a positive note, asset quality improved by 3.5ppts to 5.5% with credit costs at 0.11% (from 9M17: 1.8%) due to improving economic variables (hence, a writeback of RM71mil mostly from PF),” it said.
Kenanga Research said on-quarter, earnings improved 42%, again underpinned by falling impairment allowances (-52%) to RM122mil as top-line fell 5% to 341.5mil dragged by falling Islamic banking income (-10%) to RM265.0mil.
Loans & financing continued to decelerate, moderating at 1%, dragged by PF and mortgages. NIM continued its downtrend (-24bps to 3.1%) with asset quality stable as GIL maintained at 5.5% with credit costs at 0.7% (vs 2Q18: 1.4%).
“Despite the falling loans/financing, we maintain our 3%-4% growth for FY18E driven by corporate loans/financing as another RM950mil is expected to be disbursed in 4Q18.
“Going forward into 2019, we believe management will be selective on loans/financing especially from PF and mortgages, mindful of preserving asset quality ahead.
“Loans/Financing will be driven by corporates as unutilized corporate financing stood at RM7bil (as of 3Q18) with management striving for 30%/70% portfolio mix (from the current 25%/75% corporate/retail). NIM compression is expected to persist into 2019 due to: (i) competition for corporate financing, and (ii) decline in higher yielding PF,” it said.
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