by MARK RAO / pic by HUSSEIN SHAHARUDDIN
MALAYSIA Building Society Bhd (MBSB) is trading at a three-year low as weak investor sentiment and a poor start to the fiscal year weighed on the company’s shares.
The financing company became a full-fledged Islamic bank last year after completing the RM645 million acquisition of Asian Finance Bank Bhd.
The merged banking unit commanded RM47.43 billion in assets at the first quarter ended March this year (1Q19) following the deal, behind Bank Islam Malaysia Bhd’s RM63.32 billion in asset value in the same quarter.
MBSB’s transformation failed to gain momentum with investors as its shares closed at 87 sen yesterday — the lowest since September 2016.
MIDF Amanah Investment Bank Bhd analyst Imran Yassin Mohd Yusof, however, said MBSB’s performance is in line with that of the banking sector in 2019.
“Banking stocks outperformed the market in 2018, but are on a downtrend this year on suspected profit-taking, among other factors,” he told The Malaysian Reserve when contacted.
This is in spite of the sector’s fundamentals remaining intact with healthy earnings and strong asset quality, while return on equity is still performing ably, he said.
“We observe many banking stocks performing below their pricing averages, and this can only be explained by weak sentiment in the industry, as opposed to anything fundamental.”
Loan growth in Malaysia is forecast to moderate this year on weaker consumer and business sentiments, while net interest margins are expected to compress on higher deposit competition in the industry.
Moderating global growth also saw major central banks across the global deploying monetary easing to accommodate for the slowing conditions, with Bank Negara Malaysia already lowering its benchmark interest rate back in May this year.
Investors have taken a cue from the weaker picture and reduced their exposure to the banking sector, with many of Malaysia’s top banking constituents in the red year-to-date.
This includes Malayan Banking Bhd, CIMB Group Holdings Bhd, Public Bank Bhd, Hong Leong Bank Bhd, Alliance Bank Malaysia Bhd and Affin Bank Bhd.
Prominent businessman and investor Tan Sri Chua Ma Yu has ceased to be a major shareholder in MBSB after disposing of his 250 million shares in the bank on May 16 this year.
A poor 1Q19 showing by MBSB did little to return investor confidence in the company as the bank’s 73.5% year-on-year (YoY) drop in net profit took the market by surprise.
This was largely owing to the higher expected credit losses recognised by the bank, bringing profit for the quarter at RM83.83 million against the RM316.79 million managed in 1Q18.
“Management guided that there will be a recovery on this front. The bank is further looking to reduce its exposure to personal loans and focus on the corporate and mortgage segments where the demand is,” Imran Yassin said.
Despite the weaker quarter performance, MBSB’s gross loans, financing and advances grew 0.7% YoY to RM35.44 billion on higher corporate financing, coupled with the bigger asset bases for corporate and mortgage financing.
This was partially offset by the decline noted in the personal financing portfolio.
The bank’s Common Equity Tier-1 capital ratio came in at 20.95% in 1Q19, above BNM’s prescribed 7% ratio, while liquidity coverage was 228.18%.
While a recovery in MBSB’s earnings should theoretically translate into a share price appreciation, Imran Yassin said the negative sentiment surrounding banking stocks will likely limit any upside for the company’s shares.
Note that the bank fixed the new shares issued under its dividend reinvestment plan at 80 sen per share — representing a 9.2% discount to the ex-dividend volume weighted average market price of MBSB’s shares.
This — while providing current shareholders good valuation to invest in the new shares — could also be a reflection of tepid sentiment in the market.
The dividend reinvestment is with respect to the five sen single-tier dividend declared for the bank’s 2018 fiscal year.
The company is scheduled to announce its 2Q19 results on Aug 15.
(Paragraph 3, 14, 15 and 19 has been edited and replaced based on the feedback from the related stakeholders for clarity and correctness.)