KUCHING: Malaysian Building Society Bhd (MBSB) is expected to undergo a major re-rating soon by analysts, having undergone a massive change in business direction over the last two years.
According to Kenanga Investment Bank Bhd (Kenanga Research), MBSB had engineered a major turnaround in profitability which supported its expectations for a major re-rating soon.
In its latest research report, Kenanga Research revealed MBSB’s total loans grew by 23 per cent to RM14.5 billion, thanks to a 40 per cent growth. Rates in retail loans, particularly personal financing that grew sharply by 192 per cent.
By the end of the financial year 2011 (FY11), Kenanga Research estimated that total loans increase at a compounded annual growth rate (CAGR) of 20 per cent over the period of FY07-11 to RM19.6 billion with personal financing loan continue taking the lead. This loan segment has been benefiting from the new Suruhanjaya Koperasi Malaysia (SKM) rule.
“Many commercial banks as well as consumer money lenders have all ceased disbursement of loans as they failed to meet a full compliance of the stiffer enforcement of regulation by SKM. We believe this event offers opportunities to MBSB to grow its personal loans and continuing capture market share,” opined Kenanga Research.
While the loan-to-deposit ratio (LDR) stood at 107 per cent, Kenanga Research understood that MBSB had also sufficient liquidity from the increased deposits to support MBSB’s lending activities.
“Deposits from customers grew by 39 per cent to RM10.5 billion in 2010 as compared to RM7.6 billion in the previous year. Besides, the group has also successfully securitised its mortgage portfolio to Cagamas amounting to RM1 billion under the Mortgage Backed Securitisation programme.
“This was part of the group’s funding programme and had effectively lowered its LDR to 128 per cent,” the research house stressed.
Kenanga Research noted that MBSB had scaled up its loan sales without substantial increasing its management and agency team.
“MBSB’s IT spends has passed its peak with little spending in the near future. As a result, its cost-to-income ratio likely to maintain in the range of 20-25 per cent in FY11, which is substantially lower than commercial banking institutions’ range of 40-55 per cent.
“Therefore, our estimate FY11 loan growth of 30 per cent is not only achievable but it will be well-supported by the additional RM500 million new equity capital arising from the recently announced rights issue,” it concluded.