• Keep NEUTRAL, new MYR2 TP from MYR2.30, 7% upside with c.6% FY23F yield. BIMB’s 1Q23 net earnings missed estimates, from strong NIM compression and weaker-than-expected financing growth. Gross impaired financing (GIF) continued expanding, but management remains confident on asset quality. After a c.29% share price decline YTD, concerns over the bank’s deteriorating asset quality are starting to be priced in, although a lack of near-term re-rating catalysts could keep it range-bound.

• 1Q23 – a slow start to the year. BIMB’s 1Q23 net earnings of MYR118.1m missed our and consensus estimates. The variance against our forecasts largely arose from its weaker-than-expected net fund-based income (+5% YoY, -9% QoQ) – due to a 21bps/16bps YoY/QoQ NIM compression – albeit this was mitigated by better-than-expected trading gains. Overhead costs surged 21% YoY (QoQ: -4%), leading to a higher CIR of 61.5% (1Q22: 58.9%, 4Q22: 62.3%). Credit costs of 38bps fell within its guidance of 30- 40bps. 1Q23 ROE stood at 6.8%, from 6.5% in 1Q22 and 7.4% in 4Q22.

• Financing growth target kept. Gross financing grew 11% YoY but was flat YTD – vs its unaltered target of 7-8% for FY23. To achieve the target, key growth areas would be mortgages and personal financing in the consumer book, while business banking segments will have a focus on green energy, healthcare, and government-backed infrastructure projects. Liquidity remains ample, based on a financing-deposit ratio of 84% (1Q22: 86%) – deposits grew by 14% YoY (QoQ: +3%), with the current, savings and transactional investment accounts (CASATIA) ratio remaining firm at 42.5% (1Q22: 38.6%, 4Q22: 36.8%). Management expects NIM to gradually rebound to 2.10% in 2Q23, then to 2.20% in 4Q23.

• Impaired financing near the peak. GIF surged 49% YoY (QoQ: +9%) – mainly dragged by its retail GIFs, which almost doubled YoY (QoQ: +19%) in tandem with the expiry of repayment assistance programmes. The GIF ratio stood at 1.37% in 1Q23 vs 1.02% in 1Q22 (4Q22: 1.27%). Management believes the GIF should not surpass 1.5% in FY23, and is comfortable with its financing loss coverage of 135% and overlay balance of MYR123.6m (c.12% of total provisions).

• Our FY23-25 net profit projections drop by 6-8% as we factor in lower NIM assumptions, although this is mitigated by higher non-fund-based income. As a result, our TP decreases to MYR2.00 from MYR2.30, and includes an unchanged 0% ESG premium/discount, as per our in-house proprietary methodology.

• ESG framework update. As there is greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 31 May 2023