15 hours ago
MBSB's Road To Recovery
RHB Investment Bank Bhd (RHB Research) has initiated coverage on Malaysia Building Society Bhd (MBSB) with a NEUTRAL call and a target price of RM0.67, implying a slight downside of 2% from its current market price of RM0.68. The research house noted that while the stock offers a dividend yield of approximately 6% for FY25, the group remains in a transitional phase, aiming to rebalance its funding and financing mix to lift asset quality and earnings over the next two years.
According to RHB Research, MBSB is currently executing its 'Flight26' strategy, which targets an 8% return on equity (ROE) by FY26. This will be driven by a combination of improved funding costs, better-quality loan underwriting, treasury gains, and enhanced operational efficiency. However, with ROE at just 4% in FY24, the research house believes the path to recovery will take time and expects ROE to reach only 5.4% by FY26, still below the banking sector's average of around 11%.
On capital strength, the house highlighted that MBSB has the highest common equity tier-1 (CET-1) ratio among its peers at 19.4%. This positions the group favourably to pursue growth while maintaining attractive dividend payouts. The bank is also targeting a financing growth compound annual rate of 8% from FY24 to FY26, above industry average. RHB Research assumes a 70% dividend payout ratio, below MBSB's informal guidance of around 90%, but this still results in strong projected yields of 6–7% over FY25–26, which should lend support to the share price.
However, the report also flagged concerns around asset quality. MBSB's gross impaired financing (GIF) ratio stood at 5.5% in 1Q25, significantly higher than the 0.5–2.2% range reported by other Islamic banks. Much of these impaired loans stem from legacy construction and personal financing segments. The house noted that around 95% of GIFs are collateralised, reducing the likelihood of substantial provisioning top-ups, but added that recoveries may take time due to protracted legal proceedings.
From a valuation perspective, RHB Research applied a Gordon Growth Model-derived price-to-book value of 0.54 times, including a 2% premium for environmental, social and governance (ESG) considerations, giving rise to the fair value of RM0.67.
While recognising MBSB as a potential Shariah-compliant alternative in the financial sector, RHB Research cautioned that the group's earnings turnaround and asset quality improvements remain key watch points. The stock, which is trading near its 52-week low of RM0.63, has fallen 24% over the past year.
Overall, the investment bank believes MBSB presents a capital-rich yet operationally cautious profile, well-suited for yield-focused investors but requiring more time to prove its strategic execution. Related
