AmWatch - Malaysia Building Society : More prudent provisioning stance HOLD, 8 May 2015

STOCK FOCUS OF THE DAY

Malaysia Building Society : More prudent provisioning stance     HOLD

We maintain HOLD on Malaysia Building Society Bhd (MBSB) with a lower fair value of RM1.80/share (from RM2.40/share previously). Our fair value is based on a lower fully-diluted ROE of 10.9% (previously 14.2%) for FY15F, leading to a lower fair P/BV of 1.0x (previously 1.6x) for FY15F.

MBSB’s annualised 1QFY15 net earnings came in 20.6% lower than our forecast, and 28.9% lower than consensus’ FY15F net earnings. The 1Q made up 19.9% and 17.8% of our and consensus full-year net earnings for FY15F. The shortfall compared to our forecasts was largely due to the loan loss provisioning line, which came in higher on the back of a larger-than-expected collective assessment expense. This is due to the company embarking on a two-year impairment programme, which led to a more aggressive provisioning stance. 

This is expected to lead to ongoing elevated collective impairment expense, which forms part of loan loss provision. The total collective expense arising from the impairment programme was RM177mil in FY14, and RM62mil-RM63mil in 1QFY15. The collective expense is expected to be at the current elevated levels for the remaining quarters of FY15, implying a total collective expense of RM250mil in total for FY15F arising from the impairment programme. Credit costs was unchanged at 123bps in 1QFY15 (4QFY14: 123bps). The company is now targeting total credit costs of 130bps-150bps in FY15F due to the impairment programme. Without the impairment programme, credit costs is expected to range around 30bps.  The company targets to bring up its loan loss cover to 100% from 78.5% currently in 1QFY15.

The latest new information with regards to its impairment programme, and new targeted credit costs and loan loss cover, have prompted us to revise our net earnings by -16.9% for FY15F, and a correspondingly lower ROE.  Nevertheless, on the whole the impairment programme indicates some prudence on MBSB’s part, which we think is positive in the longer run. In addition, MBSB’s revenue held up well considering that this is a shorter working quarter.

Others :

Petronas Chemicals : 1Q: Lower product prices hurt earnings      HOLD

Economic Update : BNM retains policy rate at 3.25% (OPR)

Economic Update : Exports rebound to 2.3% in March (Trade)

NEWS HIGHLIGHTS

Malaysia Building Society : Eyeing KFH Malaysia in bid to become full-fledged Islamic bank

DiGi.Com : Eyes wider coverage for high-speed wireless services for mobile phones

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.