MBSB: Earnings Beat Expectations on Cost Efficiencies, Target Price Raised

A leading financial institution’s first-half 2025 financial performance surpassed analyst expectations, driven primarily by robust cost management and a strategic shift in its financing portfolio. The group reported a strong second-quarter net profit, contributing significantly to its overall half-year results.

Performance Review

For the first half of 2025, the institution posted a net profit of RM180.2 million, marking a substantial 35% year-on-year increase. This figure accounts for 38% and 37% of the investment bank’s and consensus full-year estimates, respectively, indicating results that were well in line with or slightly above forecasts. The second quarter alone saw a net profit of RM95.6 million, an impressive 74% year-on-year and 13% quarter-on-quarter growth.

The positive deviation from previous estimates was largely attributed to strong non-financing income, which surged 14% year-on-year from both fee-based and non-fee activities. Additionally, prudent cost control measures were evident as credit costs eased to 42 basis points in 1H25, significantly down from 70 basis points in 1H24 due to the absence of large, one-off provision charges. A moderate effective tax rate also contributed positively to the bottom line. An interim dividend per share of 2 sen was declared, reflecting a healthy 91% payout ratio.

Operational Dynamics and Challenges

Despite the strong earnings, net financing income experienced a 4% year-on-year decline, primarily due to flat year-to-date financing growth. However, management is actively addressing this by shifting its financing composition away from traditional personal financing (down 6% year-on-year annualised) towards more lucrative SME financing (up 12% year-on-year annualised). The cost-to-income ratio (CIR) saw a slight uptick to 58% in 1H25 (from 57% in 1H24), primarily due to higher personnel costs associated with new hires.

On the balance sheet front, total deposits declined 13% year-to-date (annualised), mainly due to outflows from large non-retail deposits. Conversely, retail deposits demonstrated resilience, growing 18% year-to-date (annualised). These shifts in financing and deposit composition are consistent with the institution’s long-term balance sheet optimisation strategy, which also contributed to an estimated 4 basis points year-on-year expansion in Net Interest Margin (NIM) for 1H25.

Asset quality also improved, with absolute Gross Impaired Financings (GIFs) shedding 22% year-on-year and 2% quarter-on-quarter, reflecting broad-based enhancements across most sectors. The GIF ratio in 2Q25 stood at 5.6%, an improvement from 7.0% in 2Q24. Furthermore, the institution maintains a robust capital position, evidenced by an industry-high Common Equity Tier-1 (CET-1) ratio of 19.5%.

Future Outlook

The management anticipates an acceleration in financing growth for the second half of 2025. Recent developments, including financing deals for data centre owners and renewable energy solution providers, support this optimistic outlook. The investment bank noted that earnings are expected to accelerate in 2H25, further bolstering financial performance. This positive trajectory has led the investment bank to raise its target price and reiterate a ‘BUY’ recommendation for the stock.