MBSB: Top-line & bottom-line seesawed

Result Update

For QE31/3/2015, MBSB's net profit ('NP') dropped by 68% q-o-q or 37% y-o-y to RM124 million while revenue rose by 16% q-o-q or 4% y-o-y to RM691 million.  Pre-tax profit ('PBT') rose 81% q-o-q but dropped 41% y-o-y to RM158 million. PBT improved q-o-q due to higher operating income. NP declined when compared to the immediate preceding quarter (QE31/12/2014) as the later quarter earning was bumped up by the recognition of deferred tax in relation to origination & reversal of temporary differences.

Compared to the previous 4-quarter, the last 4-quarter revenue was down marginally by 0.4% while PBT was off by 14%. NP rose by a whopping 50% mainly due to the recognition of deferred tax in relation to origination & reversal of temporary differences. If these items were excluded, NP would be lower by 8%.


Table: MBSB's last 8 quarterly results

A closer look at the chart below reveals that MBSB's revenue has probably peaked while its 4-Q average PBT margin has begun to decline. In the current economic environment- with weaker consumer confidence & rising funding costs- it is likely that MBSB will face even more challenges in keeping its earning at the present level, let alone growing its earning going forward.


Chart 1: MBSB's last 43 quarterly results

Valuation

MBSB (at RM2.03 yesterday) is now trading at a current PE of 5.8 times (based on the annualized EPS of 35 sen). However, the last 4 quarters' EPS was boosted by a one-off deferred tax recognition of RM366 million. If this one-off item is excluded, the 4 quarters' EPS would be lowered to 21 sen and PE would increase to 9.6 times. Given an option; would you invest in a finance company trading at a PE of 10 times or would you rather pay a bit more and invest in Maybank at a PE of 12 times?

MBSB has an attractive DY of 6.0%. That nearly matches Maybank's DY of 6.2% or AFG's DY of 6.2%. However, AFG paid a special dividend of 10.5 sen which bumped up its DY last year. If this special dividend is excluded, AFG's DY would be 4%.

Technical Outlook

In the last post, I have commented that MBSB could have made a double top reversal at RM2.60. If it slid further (say below RM2.00), the stock could be entering into a downtrend. That comment is still valid.

 
Chart 2: MBSB's monthly chart as at May 7, 2015_3.30pm (Source: ShareInvestor.com)

Conclusion

Based on poorer financial performance and tougher operating environment, I believe it is advisable to reduce our position in MBSB. However, it must be noted that its valuation is not excessive and its technical outlook is neutral, albeit hanging precarious at the RM2.00 mark.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, MBSB.