Briefly on CBS system. MBSB signed the agreement to roll out the new Core Banking System (CBS) and IT technology with Silverlake Innovation Partners SB yesterday. In our previous update on the company, we stated that the first phase of the CBS will officially commence in November 2012. We also said we expect the new system to enable MBSB to efficiently deliver its products and services to its customers as well as enhance the company's operational efficiency via a centralized system, especially in terms of resolving current product development issues.

Forking out RM100m over five years. The CBS system will initially roll out at the company's east coast branches. MBSB president and CEO Datuk Ahmad Zaini Othman said the entire system will cost approximately RM100m over five years.

A direction to become a full-fledged bank by Nov 2013? The CBS system is part of MBSB's long-term goal of closing the gap that separates it from other banking institutions. We believe the reported November 2013 target is only an initial step towards helping MBSB to move towards this long-term goal. Moreover, the company still has to tackle some immediate concerns, which are: i) liquidity issues, as evidence in the low liquid assets ratio in its current financial quarter, and ii) the company would need to seek exemptions from Bank Negara to maintain its existing salary deduction scheme, which is a vital part of the company's core business. Note that EPF owns approximately 65% of MBSB.

Maintain our forecasts. We are maintaining our BUY call and FV unchanged at RM3.02, premised on a 2.6x 12-month forward PBV, assuming a 4% growth rate and COE of 11%.

Source: OSK