RHB initiates 'Neutral' call on MBSB, sees 6-7pct dividend yield cushion

New Straits Times

23-06-2025

KUALA LUMPUR: RHB Investment Bank Bhd has initiated coverage on MBSB Bank Bhd with a 'Neutral' rating, valuing the stock at 67 sen per share, or about 2 per cent below its current market price of 68 sen.
In its research note, RHB described the upcoming financial years as a transitional phase for MBSB, as the Shariah-compliant bank focuses on rebalancing its funding and financing mix to enhance overall asset quality.
"This will take time to kick in. In the meantime, MBSB continues to hold on to excess capital, which management intends to utilise for growth whilst maintaining attractive dividend payouts," the research firm said.
As part of its Flight26 strategic plan, MBSB aims to achieve an 8 per cent return on equity (ROE) by the financial year 2026 (FY2026), doubling the 4 per cent ROE recorded in FY2024. This target is underpinned by expectations of a stronger earnings profile, improved funding mix, better fee and treasury income, and continued cost discipline.
RHB noted that MBSB currently holds the highest common equity tier-1 (CET-1) ratio in the sector at 19.4 per cent, with further upside potential due to its sector-high risk-weighted assets density of 74 per cent. This capital strength enables the bank to pursue above-industry financing growth while supporting sustainable dividend payouts.
On the asset quality front, the bank's gross impaired financing (GIF) ratio stood at 5.5 per cent in the first quarter of 2025 (Q1 2025), notably higher than the 0.5 per cent to 2.2 per cent range among peers.
"We understand that a significant portion of MBSB's GIFs come from legacy construction and collateralised personal financing accounts, but these have a long legal process and recovery period, and over 95 per cent of the GIFs are collateralised with high recovery rates," RHB said.
The research house also highlighted several potential risks, including slower financing growth, weaker deposit traction, softer non-financing income, rising credit costs, and key management departures.
Despite these concerns, RHB expects MBSB's dividend yield to remain attractive at around 6 per cent in FY2025, serving as a buffer against downside risks.
"We project a 14 per cent compound annual growth rate in net profit between FY2024 and FY2027, with profit forecast to rise from RM472 million in FY2025 to RM597 million in FY2027.
"This projection is based on an operating income compound annual growth rate, positive operating leverage supported by cost discipline, and credit costs.
"We assume a 70 per cent dividend payout ratio, which translates to attractive dividend yields of 6 to 7 per cent for FY2025 and FY2026," RHB added.