MBSB (1171) Malaysia Building Society Bhd - The enigmatic investor

MBSB (1171) Malaysia Building Society Bhd - The enigmatic investor

THE ordinary facade of the corner shoplot along Jalan Bangkung in Bangsar has often intrigued passers-by. Some have even mistaken it for a beauty salon.

But the address can easily count itself as the bedrock on which huge treasures of the capital markets lie.

From pictures to frames of old stock and bond certificates and the now symbolic Western Union Stock Ticker machines, they are all found in the office of the enigmatic Tan Sri Chua Ma Yu.

The framed-up image of former United States president Ronald Reagan and his Russian counterpart, Mikhail Gorbachev, on the balcony of the New York Stock Exchange in 1992 signaling the end of the cold war and the rise of American capitalism is a stark reminder of Chua and his foresight in the capital markets.

The 64-year-old former stockbroker and banker is among the rare breed of people who are able to see the trends in the capital markets well ahead of the curve. And it is this uncanny ability that has sometimes earned him the moniker of a “one-man institutional investor”.

The many pictures in his office will convince anyone that this serial investor, who is now a part-time developer, has his first love and passion in the capital markets.

“I have always been intrigued by the capital markets – it is my passion,” he says when StarBizWeek caught up with him just before his lunch break after news emerged that he had increased his interest in Malaysia Building Society Bhd (MBSB).

Chua, who earned his stripes when he co-founded what is now known as the RHB financial services group, is the second-largest shareholder in MBSB with a stake of 8.97%.

The largest shareholder is the Employees Provident Fund (EPF) with 65.4%.

MBSB is a financial institution that primarily caters to micro financing, specifically for personal loans and mortgages ranging from property to cars and equipment.

It recently undertook an RM1.7bil fund-raising exercise, which drew a fair bit of scepticism from some segments of shareholders. However, Chua took the opportunity to increase his stake, which was previously about 6%.

“I’m a contrarian. I get greedy when others become cautious,” says Chua.

MBSB is expected to see its profit being slashed by more than half this year due to impairments of loans. The total amount to be impaired is some RM1.4bil over two years. It is part of a two-year programme for its asset quality to be on par with commercial banks.

A combination of a cash call and reducing earnings has caused a selldown of MBSB since early this year.

Chua feels that the non-conventional financial institution is oversold, which has prompted him to increase his stake.

“The price has come down quite a bit. And the company has fresh capital of RM1.7bil which at a conservative rate of 6% return (return on equity or ROE) would add RM100mil to the bottom line,” he says when asked why he is bullish on MBSB.

Unlike normal commercial banks, MBSB has no access to the cheap funds offered in the inter-bank market, which has impacted its net interest margin.

It generally has been able to generate profits of RM1bil on a total equity of RM4.9bil, which is an ROE of about 20%.

However, in the next two years, it is setting aside RM700mil per annum for impairments, which has brought down its ROE substantially.

The reason for impairments, it says, is to enhance the quality of its loans to be on par with that of commercial banks. Also, with the capital raising completed, MBSB’s leverage ratio would be 12.5%, which is something that Bank Negara would like to see all its financial institutions attain.

At the end of the impairment exercise, MBSB is hoping for Bank Negara to give it a full-fledged banking licence, something that would reduce its cost of funds substantially.

In fact, one of the drivers for Chua to increase his interest in MBSB, apart from its fundaments, is the possibility of the building society becoming a full-fledged commercial bank.

If MBSB has access to the cheaper cost of funds in the inter-bank market, its net interest margins should improve and help boost the ROE. Coupled with its low cost-to-income ratio (CIR) of less than 30%, a low book value and a strong principal shareholder in the EPF, Chua feels that MBSB is worth a second look.

Investing policy

Unlike most investment gurus who focus on picking the correct stock or looking for the next trend to put their money in, Chua’s guiding principle is to minimise mistakes.

“Investing is all about making fewer mistakes. Global capital markets are open 24 hours and opportunities are always open. But one has to make fewer mistakes and look at the long term,” he says.

“Being in the stock market, everyday we have to make a call. The fewer mistakes we make, the higher the probability of survival,” he adds.

Armed with 40 years of experience in the capital markets, Chua divides his time between his investments and property ventures these days.

He also devotes a fair bit of time to his role as chairman of The Community Chest, a charitable entity funded by 14 tycoons that purchased Pan Malaysian Pools from T Ananda Krishnan’s Tanjong Plc in 2012 for RM2bil. So far, The Community Chest has distributed RM135mil to schools throughout the country.

In property ventures, Chua only opts to do prestigious projects.

The first to take off is the OneKL residences that gained fame for having a swimming pool in each of the units. The tagline was “94 apartments, 95 swimming pools” and it was located in the heart of the city centre.

The other project is the St Regis hotel and residences that is quickly gaining ground as an address for the rich and famous of Malaysia.

An accountant by training, Chua has survived four stock market shocks – the 1985 Pan El crisis that caused the exchanges of Malaysia and Singapore to shut down, the 1987 Black Monday crash, the 1998 Asian financial crisis that saw a meltdown of Bursa Malaysia, and the 2008 US financial crisis.

And he has survived each of it.

Chua earned his stripes as an accomplished investor during his years at building up Rashid Hussain Securities from a mere brokerage to a financial services group with an interest in banking, insurance and property under its belt.

It all happened within a short span of nine years too, starting from 1983.

He started his career as an accountant in 1975 with GP Securities (eventually taken over by Public Bank Bhd), where he was employed by Malaysia/Singapore’s first lady broker – Maggie Teh Guat Poh.

Three years later, he traded his accounting books to become a company dealer, where he met a suave investment banker in Rashid Hussain (now Tan Sri Rashid Hussain).

Coming from Singapore, Rashid was then heading the asset-management unit in Bumiputra Merchant Bankers and he was a client of Chua. The duo later became neighbours in the swanky Federal Hill neighbourhood.

By 1983, the duo decided to purchase a stock brokerage and were eyeing a foreign firm.

However, an opportunity fell into their hands when the-then Finance Minister, Tengku Razaleigh Hamzah, wanted to see more bumiputra stock brokers in the industry and was prepared to issue licences.

They managed to get a licence and that was the start of the Chua-Rashid partnership that rocked the financial services industry with their Rashid Hussain Securities.

They started the firm with a capital of RM2mil in 1983. In the first two years, the brokerage was already in the black to the tune of RM6mil.

Rashid Hussain Securities came out stronger after the 1985 Pan-El crisis as the weaker firms fell out. By 1987, they were already raking in some RM11mil in profits, which was way ahead of their competitors.

But the industry operated in a rather inefficient way. It was short of capital, contracts and processes were done manually and stock quotes were written on boards under an open-cry system.

During that time, Chua said he managed to convince the-then Finance Minister Tun Daim Zainuddin that the industry needed to be institutionalised and capitalised.

The birth of RHB

In 1987, Rashid Hussain Securities was part of the listed Rashid Hussain Bhd (RHB) that was beefed up with a capital of RM60mil.

Rashid was the chairman of RHB with a 51% stake and Chua became the chief executive officer with a 24% interest. By then, the office had moved into a building acquired from Peremba located along Jalan Tun Razak.

That building is now the headquarters of the RHB financial services group.

Chua said that he often travelled to Taiwan and came back with valuable ideas on how to improve the brokerage. It led to Rashid Hussain Securities becoming the first broker to have a research arm and a pioneer in computerisation of the backroom operations.

“I conceived the idea of the modern public gallery (now seen at RHB headquarters) and the dealing room of Rashid Hussain Securities, emulating the concept from Taiwan,” says Chua.

However, the brokerage was constrained by capital, which prompted it to acquire a stake in a bank called Development and Commercial Bank (D&C Bank).

Chua recalled that in 1990, he started the negotiations with Indonesia’s Oei Hong Leong that finally ended up with RHB acquiring a 25% stake in the bank for RM225mil. Subsequently, D&C Bank became RHB Bank.

The acquisition propelled the group to become one of the largest financial services entities in the country. By then, RHB had won most of the corporate deals in town. The Chua-Rashid combination blazed the trail and took the industry by storm.

The market capitalisation was well above RM1.5bil at one time.

In 1992, Chua sold his 25% interest in RHB to Tan Sri Wan Azmi Wan Hamzah for RM200mil following differences with Rashid. He formed CMY Capital.

Wan Azmi sold the block to Malaysian Resources Corp Bhd and eventually, it landed in the hands of the EPF.

The group evolved into the RHB Capital group after acquiring two more banks (Kwong Yik Bank and Sime Bank) and merged with Utama Banking Group Bhd of Sarawak (UBG).

Rashid sold his stake to the UBG group, which subsequently disposed the interest to the EPF.

Chua does not regret selling out in 1992, before Malaysia’s great 1993 stock market bull run. All brokerages made a pile from the run.

“I put my money in other places where I made fewer mistakes. It’s the end result that counts,” he says.

MBSB (1171) Malaysia Building Society Bhd - The enigmatic investor