BERHAD: Bank’s Outlook Mixed Amid Quality Financing Focus, Forecasts Trimmed

AmInvestment Bank has reiterated its “HOLD” recommendation on MBSB BERHAD, revising its target price downwards to RM0.62 from RM0.65. This adjustment comes as the bank trims its net profit forecasts for FY25F-27F by 9.4% to 8.2%, reflecting a mixed outlook driven by a strategic shift towards higher-quality financing, which is expected to pressure asset yields in the near term. The previous last traded price was RM0.70.

Performance Review and Forecast Adjustments

The investment bank noted a 1.7% year-on-year decline in financing growth during 1HFY25, primarily due to subdued momentum in the personal, auto, and corporate segments. Despite an anticipated pick-up in financing activity in 2HFY25, bolstered by corporate disbursements, net profit margins are expected to soften, potentially declining by up to 10 basis points, settling at 2% for the full FY25 compared to 2.1% in the first half. The downward revision in profit forecasts is attributed to lower net profit margins, revised net fund-based income estimates, and updated operating expenditure assumptions. Furthermore, MBSB’s FY26F Return on Equity (ROE) remains modest at 5.3%, considerably lagging the industry average of 10.1%.

Operational Strategies and Future Outlook

MBSB is actively reorienting its financing portfolio away from the real estate and construction sectors towards higher-quality financing. This strategic move, while potentially impacting asset yields initially, is aimed at strengthening portfolio resilience. The group has shown an improving trend in its cost of funds, with its Current Account Savings Account (CASA) ratio rising from 4.2% in FY21 to 10% in 6MFY25, driven by expanded product offerings and digital initiatives. The bank aims to further increase its CASA ratio to 15% by year-end to reduce funding costs. Non-fund-based income is projected to surpass RM200 million for FY25, supported by robust investment banking and core banking fees.

Dividend Policy and Capital Management

Despite the challenges, MBSB is expected to maintain its high dividend payout, which exceeded 90% in 1HFY25. This strategy is seen as crucial for managing surplus capital and supporting ROE, especially given the strong CET-1 ratio of 19.8% against an industry average of 14.9%. The Group’s Gross Financing Income Rate (GFIR) may experience a slight dip in 2HFY25 due to a larger financing base from increased corporate financing but is expected to remain well above the industry average.

Valuation and Risks

The maintained “HOLD” rating is based on a CY26 price-to-book ratio of 0.5x, underpinned by a 5.3% ROE. Key risks identified by AmInvestment Bank include a slowdown in global economic growth, unexpected rises in funding costs if CASA growth falls short, and prolonged high interest rates affecting non-interest income.