MBSB’s banking venture positives priced in current rally — Analyst

Borneopost Wed, Jan 18, 2017 09:30am - 7 years View Original


KUCHING: The positives of Malaysia Building Society Bhd’s (MBSB) proposed venture to enter the banking sector have already been priced in the current stock rally.

To recap, in a filling on Bursa Malaysia last month, MBSB announced it had received a letter of approval from Bank Negara Malaysia (BNM) to commence negotiations with existing shareholders of Asian Finance Bank Bhd (AFB) for a proposed merger of MBSB and AFB.

The letter further stipulated that negotiations were to be completed within six months of the letter’s issue or by May 21.

The proposed merger was viewed positively by the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) as it would allow MBSB to develop into a full-fledged Islamic Bank and allow the group to be able to tap into new financial service segments.

The segments are trade facilities, collecting CSA deposits and offering other interbank instruments.

In turn this optimism on the proposed merger and perceived positives have contributed to the current stock price rally which reached a high of RM1.12 at closing yesterday, representing a 24.44 per cent increase since the beginning of the year where the stock was valued at RM0.90.

With investors clearly bullish on the stock, MIDF Research instead expects the stock to consolidate at this level as they opine that even if the group is able to complete the proposed merger with AFB this year, it would still take some time for its management to make use of the full-fledged banking license.

“Therefore, we view that all positives on the proposed merger should have already been priced in the current rally,” declared the research arm.

Additionally, the research arm also noted that the current rally can also be partly attributed to the negative side on the company’s past quarterly results which has been flushed out of the market, thus allowing MBSB’s share price to react positively to its FY17 earnings prospects.

As such, the research opined that the stock is currently fairly valued and will be downgrading their recommendation to ‘Neutral’ from ‘Buy’ with an unchanged target price of RM1.08 which is pegged to a price-book valuation (PBV) of 0.9 times of which is 1SD below its 3-year average PBV of 1.6 times.

Furthermore, the research arm will be making no changes to their earnings forecast which are based on MBSB’s current non-banking g operations at this juncture.

“Our current forecast for MBSB sees FY17 earnings growth of 40 per cent from a low base and improvement in its overall asset quality,” added the research arm.

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