The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Maintain BUY with unchanged target price (TP) of RM1.08
- MBSB has received approval from Bank Negara Malaysia (BNM) to commence negotiations on a proposed merger
- We are positive on the ongoing development towards becoming a full-fledged Islamic bank
- We maintain our earnings forecast at this juncture
- Hence we reaffirm our BUY recommendation with an unchanged TP of RM1.08
NEWS
MBSB gets nod for negotiations on a proposed merger. MBSB yesterday has received a letter from BNM dated 21 December 2016 which states that BNM has no objection in principle for MBSB to commence negotiations with the existing shareholders of Asian Finance Bank Berhad (AFB) namely Qatar Islamic Bank, RUSB Investment Bank Inc, Tadhamon International Islamic Bank and Financial Assets Bahrain WLL for a proposed merger of MBSB and AFB. BNM requires that the negotiations be completed within six months from the date of BNM’s letter.
OUR VIEW
Positive on the proposed merger. We are positive with the on-going development on the proposed merger with AFB. We have little doubt that the proposed merger will be a profitable one as is the prospect of becoming a full-fledged Islamic bank. While the expansion of profit and assets are likely to be immaterial, the proposed merger will benefit MBSB in another way. The full bank licence will allow MBSB to be able tap into new financial services segments which it cannot offer at the moment (such as trade facilities, collecting CASA deposits and offering other interbank instruments) to expand the business. We expect the challenges of the proposed merger much will depend on an agreement on pricing. Given Malaysia’s banking sector has been trading below its 5- year historical PBV of 1.3x-1.5x, it is fair for MBSB to pay 1.1x-1.2x premium of 9MFY16 AFB’s book value of RM500.1m to obtain a full-bank licence, which would translate to a price of about MYR550m-600m.
Impact on earnings. We make no changes to our earnings forecast at this juncture until further clarification on the proposed merger.
Recommendation. We reaffirm our BUY recommendation on MBSB with an unchanged TP of RM1.08. Our valuation is pegged to PBV of 0.9x, which is 1 standard deviation below its 3-year average PBV of 1.6x.
Source: MIDF Research - 22 December 2016
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