MBSB's Road To Recovery
According to RHB Research, MBSB is currently executing its 'Flight26' strategy, which targets an 8% return on equity (ROE) by FY26. This will be driven by a combination of improved funding costs, better-quality loan underwriting, treasury gains, and enhanced operational efficiency. However, with ROE at just 4% in FY24, the research house believes the path to recovery will take time and expects ROE to reach only 5.4% by FY26, still below the banking sector's average of around 11%.
On capital strength, the house highlighted that MBSB has the highest common equity tier-1 (CET-1) ratio among its peers at 19.4%. This positions the group favourably to pursue growth while maintaining attractive dividend payouts. The bank is also targeting a financing growth compound annual rate of 8% from FY24 to FY26, above industry average. RHB Research assumes a 70% dividend payout ratio, below MBSB's informal guidance of around 90%, but this still results in strong projected yields of 6–7% over FY25–26, which should lend support to the share price.
However, the report also flagged concerns around asset quality. MBSB's gross impaired financing (GIF) ratio stood at 5.5% in 1Q25, significantly higher than the 0.5–2.2% range reported by other Islamic banks. Much of these impaired loans stem from legacy construction and personal financing segments. The house noted that around 95% of GIFs are collateralised, reducing the likelihood of substantial provisioning top-ups, but added that recoveries may take time due to protracted legal proceedings.
From a valuation perspective, RHB Research applied a Gordon Growth Model-derived price-to-book value of 0.54 times, including a 2% premium for environmental, social and governance (ESG) considerations, giving rise to the fair value of RM0.67.
While recognising MBSB as a potential Shariah-compliant alternative in the financial sector, RHB Research cautioned that the group's earnings turnaround and asset quality improvements remain key watch points. The stock, which is trading near its 52-week low of RM0.63, has fallen 24% over the past year.
Overall, the investment bank believes MBSB presents a capital-rich yet operationally cautious profile, well-suited for yield-focused investors but requiring more time to prove its strategic execution. Related
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