Friday, August 07, 2015

MBSB: Bottom-line plunged

Result Update

For QE31/3/2015, MBSB's net profit plunged by 31% q-o-q or 63% y-o-y to RM86 million while revenue rose by 11% q-o-q or 14% y-o-y to R766 million. The drop in NP was mainly due to higher allowances for impairment losses on loans, advances and financing. The impairment losses is a continuation of its 2-year impairment program initiated in 4Q2014.  As at June 2015, MBSB's net impaired financing ratio stood at 3.8% - a decline from 4.0% in March 2015. Nonetheless, it is high compared to Maybank's net impaired loans ratio of 1.06% (as at March 2015) or PBBank's gross impaired loans ratio of 0.6% (as at June 2015) but within striking distance to CIMB's gross impaired loans ratio of 3.2% (as at March 2015). Of course, these are commercial banks which operate under different guidelines (with PBBank & Maybank among the top tier banks in term of loan quality). However, since MBSB is aspiring to operate under the same guidelines, then we can expect the impairment losses to continue for a while longer. For more on MBSB's results, go to the Star newspaper article today.


Table: MBSB's last 8 quarterly results

A closer look at the chart below reveals that MBSB's bottom-line continued to slide even though top-line increased. This is due to the continued decline in its profit margin.


Chart 1: MBSB's last 44 quarterly results

Valuation

MBSB (at RM1.72 yesterday) is now trading at a trailing PE of 5.8 times (based on the annualized EPS of 30 sen). However, if MBSB's performance for the next 2 quarters mirrors those of the last 2 quarters, then its full-year EPS would be about 16 sen. Its current PER would be about 10.8 times. At this PER, MBSB is fully valued.

Technical Outlook

MBSB has a double top reversal at RM2.60 in 2014. It has broken below the "uptrend line" (S-S1). Its next support could be at horizontal lines at  RM1.45 or RM1.25.

 
Chart 2: MBSB's monthly chart as at Aug 6, 2015 (Source: ShareInvestor.com)

Conclusion

Based on poorer financial performance, tougher operating environment & bearish technical outlook, I maintain the rating of REDUCE for MBSB.

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.

10 comments:

股灵精探 said...

does it worth to hold for longer term in your opinion?

Alex Lu said...

Hi 股灵精探

Investment return is determined by 3 things: point of entry, point of exit and duration in between. If you have already entered the stock, then the questions that remain unanswered are: how long to get the best return & what's the best return?

MBSB is essentially a consumer financier with the bulk of its assets in personal financing to the civil servants. If that sector is tapped out, then it has to find alternatives. It is in the midst of doing so, such as lending to corporate sector. That's not easy and not so lucrative.

Its funding will also determine its profit. It is not as versatile as commercial banks as a place to deposit your funds in term of online transaction & availability of ATMS.

All in all, MBSB will find it very challenging to stay relevant in the new financing landscape. Its super profit may be a thing of the past (another RCECap?). But all is not lost. Just look at AEONCR- the financing arm of AEON that has become a serious player in consumer finance sector!

股灵精探 said...

Hi ALex,

Thanks for your comment. What's your view of the potential merger, can it be the catalyst in neat future?

Alex Lu said...

Hi 股灵精探

If you are referring to the potential merger with an Islamic bank, I think it's a possibility. If MBSB has cleaned up their books - by complying with BNM's guidelines - then other banks may be keen to discuss merger. That's why it is going thru this painful provisioning exercise- to impress its suitors!!

股灵精探 said...

Hi Alex.

Can I interpret its impairment exercise as temporary, from its CEO, this plan going to take 2 years, is that means its impairment won't be that high after this period?
From its current quarter report, Revenue is growing, income slightly declined, the major cause of the sharp decline in profit is high impairment.

Alex Lu said...

Hi 股灵精探

Your assumption with regards to the impairment exercise is reasonable. However, this may change if the economic situation changes. Normally, the provisioning exercise would be front-loaded. Since there has been rumor/reports of M&A activities linked to MBSB, it is possible that the opposite is likely. Why provide more and depress the earnings?! Lower earnings could weaken your bargaining position. Thus, the impairment exercise can pick up pace instead of tapping off due to economic factor & management decision.

股灵精探 said...

Hi Alex,

So in your opinion the M&A is very unlikely to happen in MBSB case. Your recommendation of reduce is due to its gloomy outlook in near term or long term?

Alex Lu said...

Hi 股灵精探

No. That's what I wrote. M&A is a possibility for all small & mid-size banks (Affin) as well as pseudo-banks (such as MBSB).

股灵精探 said...

Hi Alex,

Banking sector is in negative state currently due to economic condition, do you think this is an opportunity to accumulate banking counter? And do you think it is wise to stay with MBSB to go through these tough process?
Thanks

Alex Lu said...

Hi 股灵精探

Firstly, I like to rephrase my reply to your earlier comment. M&A is a possibility for all small & mid-size banks (Affin) as well as pseudo-banks (such as MBSB).

Now for your new comment. It's hard to say whether you should hold onto MBSB or get into another banking stock now. I will share with you the same answer I gave my client who asked, What's a good stock to buy now?

That depends on how bad things are going to get. If the bear market lasts for 1-2 weeks, you can start buying next week. However I doubt the bear market will only last 1-2 weeks. It may last 1-2 months or 3-6 months or even longer...

I remember one of my clients, who missed out on buying Maybank at its low in 1998, would never fail to remind me to alert him to buy Maybank if it ever drops below RM4. Well, Maybank did drop to around RM4.00 again in 2009. When I alerted him, he did not buy because Maybank would incur heavy losses in Indonesia. Today, he never talked about buying Maybank again. Check out this link: http://nexttrade.blogspot.com/2009/03/maybank-good-long-term-buy.html

The truth is the really good stocks would drop at the tail-end of a bear market. If you get into the market too early, you would buy your stocks at higher prices. If you had invested all your money and the market gives you even better stocks at good prices, you won't have room to invest.

However, if you put off your plan to invest when the market is at the low, a sharp recovery would spoil your investment plan. Most investors just can't get themselves to buy after the stocks had rebounded off the low by 20%. It's a sad fact!

In my opinion, our bear market has more downside and is likely to drag on many weeks, if not months. This is very similar to 1998 because of the contagion effect (see, currency depreciation) and political quagmire that we're in. Check out another one of my earlier post: http://nexttrade.blogspot.com/2015/08/market-outlook-as-at-august-10-2015.html

Investing is not easy. If you want to make it less difficult, try not to beat the market. Follow these 2 difficult rules:
1. Sell if the market has peaked- even if the prices are off the high.
2. Buy if the market has bottomed- even if the prices are off the low.

All the best in your investment.