Investment Highlights

• We maintain our BUY call on BIMB Holdings (BIMB) but lower our FV to RM4.80/share from RM5.20/share after revising our SOP valuation with a PB multiple of 1.3x on Bank Islam (previously: 1.4x).

• We lower our net profit estimates for the commercial bank, Bank Islam after factoring in another OPR cut of 25bps in 2H19. Our FY19/20 earnings estimates for the group have been trimmed by 2.5%/2.3% to RM709mil/RM792mil. Although the FV has been reduced, we still see an upside in the share price of BIMB as Bank Islam is still undervalued at 1.1x PB considering an ROE of 11.6% for FY20.

• We met the management recently for updates. Its key subsidiary, Bank Islam, established a tie-up with Green Packet to offer e-wallet services. This will target the education sector, in particular, the Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) loan borrowers. Other collaborations on e-payment are still in progress.

• The group has allocated operating expenses (opex) of RM300mil for the next 2 years (FY20 and FY21) on digital spend. Management said the group will be cautious on opex Bank Islam’s opex is expected increase less than 10.0%, contributing to a group CI ratio of 57.4% for FY19.

• NIM impact from the recent OPR cut of 25bps will be 6- 7bps p.a. (full-year impact) on the group, and we have imputed this in our estimates. The bulk of deposits will be repriced within 6 months. Circa 90% of Bank Islam’s customer deposits have a maturity of 3–6 months in tenure. The group has no plans to raise any long-term funding in 2H19 that will increase its funding cost.

• The NSFR for Bank Islam stood at 104.0% and was above its internal target of 103.0% and the minimum regulatory requirement of 100.0%

• Credit cost guidance for the group is below 30bps (<0.30%) for FY19. Group credit cost for 1Q19 and 2Q19 has been stable around 20bps.

• Asset quality remained stable with a gross impaired financing (GIF) ratio of below < 1.0%. Group GIF ratio could potentially be lower in 2H19 from the normalization of certain R&R financings to real estate and manufacturing sectors which are well collateralised.

• Consumer financing growth is still mainly in mortgages to finance properties ranging between RM250,000 and RM500,000, and personal financing which are tied to deduction of borrowers’ salaries. Group loans are on track to meet the growth target of 6.0–7.0% for FY19.

• Profit contributions from Syarikat Takaful Malaysia Keluarga (STMK) are still strong with growth supported by its tie-ups with Bank Rakyat, Bank Islam, RHB Islamic and Affin Islamic as preferred partners. Bank Rakyat’s personal financing contributed 89.0% of the bank’s total financing, which in turn supported the growth in STMK’s bancassurance business.

• Bank Rakyat plans to scale down its personal financing mix to 70.0% by 2025 and diversify by granting loans to other segments such as mortgage, car, business and corporate financings. This could see Bank Rakyat’s bancassurance contributions to STMK coming from other loan segments rather than just mainly personal financing. 2H19 bancassurance income of the group is likely to pick up momentum in line with growth of mortgage loans. The new entrant in takaful market in Malaysia, FWD Takaful with the strong shareholders, could pose some competition pressure on STMK moving forward.

• Recall, FY19 ROE target for group is 14.0% while the FY19 ROE target for bank is 15.0% at PBT level, and 12.0% at PAT level.

• Potential areas to generate higher non-interest income (NOII) are:

i. Treasury earnings from trading due to decline in yields;

ii. Income by leveraging group synergies.

Source: AmInvest Research - 9 Aug 2019