KUALA LUMPUR (Nov 30): Kenanga Research downgraded Malaysia Building Society Bhd (MBSB) to "underperform" with a lower GGM-derived PBV target price (TP) of 54 sen (from 60.5 sen) after saying the group’s earnings for the cumulative nine months ended Sept 30, 2021 (9MFY21) “disappointed”.
In a report on Tuesday (Nov 30), Kenanga said MBSB’s 9MFY21 net earnings of RM362.3 million were below expectations due to larger-than-expected modification losses, noting that losses were registered for the third quarter ended Sept 30, 2021 (3QFY21) owing to it, with operating cost expected to be more buoyant going forward.
“While management is positive on a stronger close in 4QFY21, we believe our estimates were too optimistic and we now err on the side of caution below management’s expectations. Hence, we cut our FY21E/FY22E earnings (estimates) by 24%/8%,” the research house noted.
“Its 9MFY21 net profit of RM362.3 million came in below expectations, only making up 52%/49% of our/consensus full-year estimates. This was due to wider-than-expected modification losses, which came from PEMULIH accounts.
“While we book in more modification losses, we also trim our financing growth [forecasts] (from 3%/5% to 1.5%/4%) as we are less optimistic than management’s target based on the group’s YTD (year-to-date) performance. Our dividend assumptions are also lowered from three sen/3.2 sen to 2.4 sen/2.9 sen,” the research house added.
Kenanga also said that in spite of the volatility, MBSB’s management is confident that it will deliver better results for the final quarter, with an improved year-end guidance of: i) a 3%-4% financing growth; ii) credit cost of 45-50 basis points; and iii) gross impaired loans of below 5%.
“Management expects to report a net write-back, which could ease credit cost to assigned levels, with the economic recovery seeking to translate into its target. However, we are conservative against applying these targets as consumers are likely to favour its larger-cap peers,” the research house noted.
“The hefty exposure to modification losses could be owing to its high retail mix, many of which are public servants. The high retail mix could translate into further application for assistance as such programmes continue to be made available,” Kenanga added.
For 3QFY21, MBSB slipped into the red, posting a net loss of RM104.6 million, compared to a net profit of RM258.24 million a year earlier, due to a modification loss of RM146.97 million and higher impairment allowances.
The group also saw net allowances for impairment on loans, financing and advances rising to RM249 million for 3QFY21 from RM52.07 million a year earlier.
Despite the loss-making quarter, MBSB's cumulative net profit for 9MFY21 more than doubled to RM362.25 million from RM172.48 million a year ago due to a strong 2QFY21 that was supported by impairment write-backs.
At the time of writing on Tuesday, MBSB’s stock was down half a sen or 0.83% at 60 sen, giving it a market capitalisation of RM4.4 billion.