PETALING JAYA: MBSB Bhd
’s financial year 2025 (FY25) and FY26 are seen as a period of transition that involves a major rebalancing of its funding and financing mix to improve asset quality, says RHB Research.
The research house, which had initiated coverage on the stock, noted that the transition would take time to kick in.
MBSB continued to hold on to excess capital, which its management intended to utilise for growth while maintaining attractive dividend payouts.
Under its Flight26 strategy, the company plans to achieve an 8% return on equity (ROE) by FY26.
“This is premised on a stronger earnings profile from a better funding mix (allowing the group to underwrite better-quality financing without sacrificing net interest margin), enhanced fee income and treasury gains, and operating expenditure discipline,” the research house added.
The FY26 target implied a doubling of ROE from the 4% achieved in FY24, albeit below the sector average of about 11%.
MBSB commands the highest Common Equity Tier-1 ratio in the sector at 19.4%, with room for further uplift given its sector-high risk-weighted assets density of 74% versus comparable peers’ at 55% to 65%.
RHB Research said this allowed the group to aim for above-industry financing growth – Flight26 target: FY24-FY26 compounded annual growth rate (CAGR) of 8% – while still preserving capital for consistent and attractive dividend payouts.
However, MBSB asset quality metrics lagged that of its peers, it pointed out.
MBSB’s gross impaired financing (GIF) ratio in 1Q25 stood at 5.5%, well above the 0.5% to 2.2% range of its peers.
“We understand that a significant portion of the group’s GIFs come from legacy construction and collateralised personal financing accounts (collectively forming about 30% of total GIFs), but these have a long legal process and recovery period,” it noted.
As 95% of GIFs are collateralised, MBSB management is comfortable with its coverage levels, and no significant top-ups to provision buffers are expected.
That said, management’s focus on lowering cost of funds should allow it to better compete for higher-quality financing, which is positive for future GIF formation and credit cost trajectory.
RHB Research projected a 14% FY24-FY27 net profit CAGR, premised on operating income CAGR of 9% from both net financing and non-financing income, positive jaws underpinned by cost discipline and credit costs of 30 basis points (bps) to 35 bps.
“Our earnings forecasts generate an FY26 ROE of 5.4%, which is short of management’s 8% target. We also assume a 70% dividend payout ratio versus management’s circa 90% informal guidance, which translates to attractive FY25-FY26 yields of 6% to 7%, offering downside support,” it said.
It has a “neutral” call on the stock with a target price of 67 sen per share.
