MBSB ... Feb11

The rights issue proposed by MBSB means its major shareholders, the EPF is prepared to pump in more money into MBSB.

That being the case, it would to a large extent halt speculation that the EPF is divesting its stake in MBSB. Such speculation should not come as a surprise as the EPF controlled MBSB has improve its performance in recent years.

But with further upside anticipated, why would the EPF want to sell a stake in MBSB at this juncture?

However, it does not completely put off the long term plan of the EPF to find a suitor for MBSB at the right price.

Based on the targeted sum to be raised from the rights issue of rm500 million, the EPF with 66.31% stake in MBSB is expected to fork out rm332 million for its portion of the call.

Add that to the previous amount of rm280 million that the EPF pumped into MBSB scheme seven years ago, the total sum comes to rm612 million, excluding equity interests that the EPF had acquired earlier.

Fundraising aside, the proposed rights issue could also be seen as a way for the EPF to average down its cost of investment per share in the company, prior to a divestment. It could have bought other shares at a much higher cost earlier.

The EPF already owns a significant stake in RHB Cap. Hence, it need not keep a large 66.31% stake in MBSB and further subscribe to a rights issue costing a few hundred million ringgit. This should be the last round of capital injection from the EPF to further recapitalize MBSB before its divestment.

Malaysia Building Society Bhd (MBSB) achieved a record pre-tax profit of RM207.4mil for the financial year ended December 31, 2010, an increase of 158% from the RM80.3mil seen in 2009.

This contributed to an improved net earnings per share of 20.85 sen and return on equity of 31%.

The group recorded a pre-tax profit of RM72.4mil for the fourth quarter against a pre-tax profit of RM42.3mil in the third quarter. The higher pre-tax profit was attributed mainly to higher loans and financing income and lower loan loss impairment in the current quarter.

The improved performance in 2010 was in line with the group's business strategies on retail products undertaken through its Taking MBSB to the Next Level programme.

As at Dec 31, 2010, net loan, advances and financing stood at RM10.7bil, an increase of 32% compared with RM8.1bil the previous year. MBSB's key retail financial product, the Personal Financing-i (PF-i)continued to be a major contributor to the company's loan asset growth.

Its focus on expansion of the personal financing sector has resulted in an impressive growth. Providing funding to the civil servants at reasonable costs would remain part of our business strategies.

MBSB during the year also ventured into certain market segments especially for mortgage where it began to target high net worth clientele. Similarly, for its contract financing, its corporate business product that was introduced late 2009, MBSB was able to secure financing for government contracts and those in the oil and gas sector.

On deposits, it grew to RM10.5bil as at Dec 31, 2010, an increase of 39% from RM7.6bil in Dec 31, 2009.

To drive its loan expansion, it had in 2010, securitised about RM1 billion of mortgage loan assets. Operationally, MBSB has been able to effectively control its costs, improve efficiency and the service turnaround time due to several key outsourcing exercises undertaken.

MBSB also announced the proposed renounceable rights issue of new ordinary shares of RM1.00 each together with new free detachable warrants to raise gross proceeds of approximately RM500mil.

The company has also proposed to raise its authorised share capital from RM1.8bil to RM2.8bil comprising 2.8 billion MBSB shares by the creation of one billion new MBSB shares.