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Thursday, May 25, 2017

Affin Hwang Research upgrades MBSB to Hold, higher target price

Thursday, 25 May 2017 | MYT 9:46 AM

KUALA LUMPUR: Affin Hwang Capital Research has upgraded Malaysian Building Society Bhd (MBSB) to Hold from its previous Sell rating due to the improving outlook after the release of its financial results.

The research house said on Thursday it had also raised its target price to RM1.25 based on a one times price-to-book value (P/BV) multiple target on 2018E’s book value (from a TP of 78 sen based on a 0.65 times FY17E P/BV multiple target).

“The higher target multiple of one time is being justified by an improving earnings outlook, with a decline in new non-performing loans (NPL) formation as the economic outlook improves, while MBSB’s loan loss cover has reached a more steady level of 113.3% (1Q17) from 93.7% (1Q16).

“In order to mitigate credit risks in its books, MBSB will continue to diversify into asset-securitisation programmes, re-price its loans at higher rates and explore potential fee income in Takaful distribution,” it said.

Affin Hwang Research said the downside risks were weaker loan growth, new asset impairments. Upside risks were a favourable merger deal with the Asian Finance Bank, write-back and recoveries of impaired loans,” it said.

In the first quarter ended March 31, 2017, it said MBSB had a good start as net profit saw a rebound of 191% on-year and 122% on-quarter (at EPS level, +42% on-year).

The results are above Affin’s and market expectations on the back of lower funding cost and lower credit costs.

“We believe that hefty provisions will unlikely be repeated in 2017 given that the NPLs are peaking, while approvals for new personal financing are more stringent. Upgrade from Sell to HoldOLD, with PT raised from 78 sen to RM1.25.

MBSB’s 1Q17 net profit of RM101.3mil almost tripled against 1Q16 +191% on-year (+122% on-quarter).

Operating income improved, up 11% on-year largely underpinned by fund-based income generation (+13% on-year), which saw an improvement in the net-interest-margin (NIM) as funding pressure eased.

The overall gross loan and financing rose by 4.1% on-year, and the bulk of it was driven by expansion in the corporate loans (+3.2% on-year).

Pre-tax profit meanwhile grew by a significant +224% on-year as impaired loan allowances declined by 23% on-year (flat on-quarter), reflected by an ease in 1Q17 credit cost at 150bps vs. 207bps in 1Q16.

“Overall results appear to be above Affin and market expectations. We anticipate that the favourable results will prompt street upgrades.

“We have revised our net profit forecasts for 2017E by 36% and 2018E-19E by 12%, as we price in a lower funding cost assumption and higher loan yields for MBSB for the forecast periods, resulting in a NIM enhancement of 10-15bps to 3.36-3.4%.

“For 2017E, we have also factored in some credit recoveries, resulting in a lower credit charge rate of 98bps from 150bps previously. Other assumptions on total loan growth remain unchanged at 4- 5% p.a. while credit costs for 2018-19E remain at 53-54bps,” it said.

Read more at http://www.thestar.com.my/business/business-news/2017/05/25/affin-hwang-research-upgrades-mbsb-to-hold-higher-target-price/#p0jzoTmqEhzupWKE.99

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