KUALA LUMPUR (Aug 6): Malaysia Building Society Bhd (MBSB) saw its net profit for the second financial quarter ended June 30, 2015 (2QFY15) plunge 63% to RM85.55 million or 3.41 sen per share, due to higher allowances for impairment losses on loans, advances and financing.

In the same period last year, its net profit was at RM232.86 million or 8.85 sen per share in.

The higher impairment losses recorded is in line with the continuation of the impairment programme initiated by the group in the fourth quarter of the previous year, its filing with Bursa Malaysia today showed.

Its latest quarterly revenue, meanwhile, was up 13.9% to RM765.78 million from RM672.08 million in the 2QFY14, due to higher income from investments of liquid assets and higher financing income from the corporate segment.

For the first half ended June 30, 2015 (1HFY15) MBSB’s net profit dropped 51% to RM209.87 million or 7.67 sen per share, from RM429.59 million or 17.22 sen per share in 1HFY14, due to the initiation of the impairment programme.

Its 1HFY15 revenue grew 9% to RM1.46 billion from RM1.34 billion previously, and its cost to income ratio has also remained relatively consistent with the previous year corresponding period to stand at below 24%

Commenting on the group’s results, MBSB president and chief executive officer Datuk Ahmad Zaini Othman said the group remains committed to its impairment programme.

“We remain committed to the impairment programme that was emplaced end of last year as this is important to ensure that our efforts to increase the level of collective assessment allowances as part of closing the gap,” he said in a statement today.

He added that the group is encouraged by the upward trend in revenue, principally due to its expansion in the corporate segment.

“Our expansion in the corporate segment is a conscious effort that we had continued to exert in ensuring that a balanced and healthy exposure is achieved between corporate and retail segments,” said Ahmad Zaini.

The group’s total assets of RM41 billion as at June 30, 2015 grew by 8.9% or RM3.3 billion from RM37.7 billion as at Dec 31, 2014, mainly contributed by its liquid assets which grew 47.5% or RM2.7 billion.

“The efforts to increase our liquid assets via deposits, issuance of Sukuk and Cagamas securitised financing in order to have a better liquidity coverage directly increases our funding costs, and this has lowered our 2QFY15 quarter operating income as compared to the previous quarters,” added Ahmad Zaini.

The impairment programme and collection recovery strategies have improved the group’s net impaired financing ratio from 4% as at March 31, 2015 to 3.8% as at June 30, 2015.

The group has also improved in other areas, recording a cost to income ratio of 23.4%, an improvement of 1.1% compared to 24.5% in the preceding first quarter of 2015.

MBSB (fundamental: 1.2; valuation: 3) said the group’s annualised return on equity (ROE), based on its 1HFY15 financial performance of 8.8% falls short of its target FY15 ROE of 12.5%, mainly due to the lower operating profit recorded as a result of lower net income from retail financing and loans.

However, its 1HFY15 annualised revenue growth of 11.5% exceeded its target FY15 revenue growth of 10%, due to higher income from investments and higher financing income from corporate segments.

As at 3.04pm, MBSB shares were down 3 sen or 1.7% to RM1.73, with 944,100 shares done, for a market capitalisation of RM4.97 billion.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)