MBSB undervalued...

MBSB has been in the spotlight for the past week due to the budget expectation that will indirectly benefit the company should civil servants' pay are bumped up with adjustment and bonus.

Malaysia Building Society Bhd (MBSB), 2nd quarter results has been very impressive.

The financial institution, which has the Employees Provident Fund as its biggest shareholder with about 66% stake, saw net profit come in at RM78.2 million, which was 58% higher than a year ago and 14.5 higher than the preceding quarter.

First half net profit is RM146.5 million, a 58% increase from a year ago beating analysts' expectations by about 12%.

The strong profit growth was largely driven by a steep rise in Islamic banking income, supported by stronger demand for personal financing among civil servants.

While housing loans used to be the group's traditional area of strength, going foward, areas of growth would be personal loans and corporate loans which are fast catching up.

Personal loans currently accounts for about 40% of MBSB's overall loans, followed by housing loans 34% and corporate loans 25%.

The company plans to launch more new retail products this year, such as hire purchase loans and Islamic credit cards, to diversify its revenue.

MBSB's share price has risen of late and closed at RM1.64 today inline with the global equity recovery in the stock markets.

Enought of the typical report, this stock is definitely under value and I would place a target price of RM2.39 to be achieved in the next 3-6 months down the road.

Re-rating catalysts include but not limited to
1) Higher-than-expected loan growth and margins
2) A sustainably high return on equity of over 20 per cent
3) Confirmation of a dividend payout ratio of at least 35 per cent
4) Potential M&A

MBSB, in which PNB also has ~12% stake, had in last quarter surprised investors with a gross dividend of 5 sen a share. It was the first time in recent years that it declared an interim dividend.
Personally feel that the company could easily be making a full-year net profit in excess of RM275 million.

In short, is the recent run up a sign to buy? Hell yeah....