MBSB (1171) - MBSB - The next BIG thing. Gotta catch em all while it is still hot!


MBSB (1171) - MBSB - The next BIG thing. Gotta catch em all while it is still hot!

Reasons to buy:
1) A convincing double bottom breakout
 

2) http://www.thestar.com.my/business/business-news/2016/08/06/the-enigmatic-investor/

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 whenStarBizWeek 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.
MBSB (1171) - MBSB - The next BIG thing. Gotta catch em all while it is still hot!  
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