Stock Watch — Malaysia Building Society Bhd: Why the 63pc increase in ‘Other Emoluments’ for its directors

KUALA LUMPUR, April 24 — The management of Malaysia Building Society Bhd (MBSB) says the growth of its personal financing and mortgage portfolios will be more challenging in 2014.

It lends money to individuals and companies, and takes deposits from them.

It says its personal financing segment will continue to be the main driver of asset growth in its retail segment, although it will show a slower growth rate.

It is also working on expanding its corporate segment as it believes it will contribute positively in terms of assets and earnings growth while diversifying its assets base.

Overall, the group expects performance in 2014 to be satisfactory, without quantifying what this means.

MBSB is an exempt finance company, meaning it can lend money without a bank license.

The company just announced earnings for Q4 FY13:

Revenue: +43% to RM 695.5 mln

Profit: -27% to RM 133.5 mln

Cash flow from operations: RM 1.75 bln vs (RM 555.6 mln)

Dividend: 5 sen per share vs 4.5 sen per share

The management of MBSB said the increase in profit for the quarter was mainly due to higher profit contribution from its Islamic operations, which came from growth of its personal financing portfolio and lower impairment losses on loans, advances and financing.

This was partially set off by higher other operating expenses and lower other operating income.

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1. Why the 63 per cent increase in “Other Emoluments” for its directors?

MBSB has called for an annual general meeting where it will propose to approve the payment of its directors’ fees of RM 586,667.

This is a gradual increase from RM 560,000 in FY12.

But on page 174 of its recently-released annual report, its Other Emoluments to be paid to the directors increased to RM 487,000 from only RM 298,000 in FY12.

That is an increase of about 63%.

The figure increased by only 25% to RM 298,000 in FY12 from RM 237,000 in FY11 (page 171 of 2012 Annual Report).

And it was up just 6% to RM 237,000 in FY11 from RM 224,000 (page 142 of 2011 Annual Report).

Now, in the context of revenue and profit running into the hundreds of millions of ringgit, these are small amounts.

But what exactly are these so-called “Other Emoluments”?

Why did it increase its Other Emoluments for its directors by such a high figure in FY13?

2. What is its portfolio focus now?

Bank Negara Malaysia’s tightening measures to curb household debt have impacted its personal finance business.

According to what management told RHB during its Tokyo roadshow recently, MBSB is now choosing to focus on corporate lending and targeted segments for its retail portfolio.

Before this, it had said late last year that it was aiming for a 60:20:20 ratio for its personal finance:mortgage:corporate portfolio.

Now that it is focussing on corporates, what is the intended ratio?

3. What are its targets for its personal finance segment for FY14?

Despite the impact of Bank Negara’s tightening measures, MBSB said its Personal Financing-i (PF-i) segment has been the main driver of asset growth.

The company has started initiating a four-hour turnaround time at some branches for PF-i and it said this has received very good response.

As of FY13, MBSB’s gross PF-i financing assets amounted to about RM 23.4 bln.

What are its targets for its personal finance segment for FY14?

4. What is it missing to become a full-fledged bank?

According to OSK Research, MBSB has yet to start trading in interbank instruments, government bonds and current accounts.

It also has not invested in an ATM network.

When does MBSB plan to implement these services?

5. Will it issue more rights?

As MBSB prepares to transition to being a full-fledged bank, it is raising money to strengthen its capital base.

It has increased its core capital ratio up to the 8% level with a recent rights issue which raised RM 1.44 bln.

Now that this is done, and it has implemented a dividend reinvestment plan (DRP) and has raised its core capital ratio to 8% level, it still has to raise more capital to increase the ratio.

According to OSK Research, the industry’s standard is about 13%-14.8%.

Will it raise the money by more rights issues?

What is its target core capital ratio?

6. Will strong cash flow affect its capital raising decisions?

It generated RM 1.75 bln in cash flow for FY13, after burning cash for the three years before that.

How does its strong cash flow affect its capital raising decisions?

7. What is the take-up of DRP?

MBSB has started offering a dividend reinvestment plan for investors that allows them to reinvest their dividends and be issued shares at a discount of 10%.

The take-up of DRP connotes a vote of support from its shareholders.

What is the take-up of DRP among its shareholders, and how much capital does MBSB expect it to contribute to its capital raising exercise?

8. What is its targeted credit cost?

MBSB’s gross impaired loans improved to RM 1.6bln from RM 2.7 bln in Q3FY13.

This is because it wrote off some legacy impaired loans against past provisioning.

Thus, its loan loss coverage rose to 98% from 86% a year ago, but its credit costs remained largely unchanged at 90-100bps.

Although this is an improvement compared to its credit cost of 143bps in Q3FY13, its credit cost was only 17bps a year ago in Q4FY12.

What is its target credit cost?

We have sent these questions to the company ([email protected]) to invite them for an on-camera interview, and/or seek their written response.

So far, we have not had a reply (which is why you are seeing this message). — Investor Central

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