Malaysia Building Society Berhad (MBSB) reported a 16% decline in net profit for the first half of FY24, aligning with expectations but falling short of consensus estimates. The group's performance reflects ongoing difficulties in managing high credit costs while striving to expand income streams. MBSB's net profit for 1HFY24 represented 47% of the full-year forecast, but only 42% of the consensus estimate, due to conservative projections in financing growth. No dividend was declared for the quarter.

Analysts at Kenanga have maintained an UNDERPERFORM call on MBSB, with a target price of RM0.59. This assessment reflects concerns over the group's credit costs and overall financial performance. Despite significant gains in total income and improved net interest margins (NIMs) by 29 basis points, these were offset by rising credit costs and high gross impaired financing (GIF).

Year-on-year, MBSB's net profit fell by 16% due to substantially higher credit costs of 68 basis points, an increase of 65 basis points from the previous period. This rise in credit costs came from a low base, as the prior period benefited from pandemic-related writebacks. Without these writebacks, credit costs for 1HFY23 would have been higher, reflecting a challenging financial environment.

Quarter-on-quarter, MBSB saw a 30% decline in net income for 2QFY24, primarily due to higher credit costs, which increased to 93 basis points. This contributed to a slight rise in GIF to 7.3%, up from 7.1% in the previous quarter. The group's ability to improve its variable rate financing to 69% and a higher SME mix of 26% demonstrates some progress, but remains insufficient in meeting targets.

Looking forward, MBSB is expected to face further challenges in optimising its funding mix and managing its impaired financing levels. The company's GIF remains a concern, exacerbated by the EPF's ihsan-i scheme, though there are hopes for a resolution of legacy assets in the near term.