Investment Highlights

• We maintain our BUY call on BIMB Holdings (BIMB) with an unchanged FV of RM4.80/share based on SOP valuation. We continue to see upside to the share price of BIMB as Bank Islam is still undervalued with the market valuing it at a P/BV value of 1.1x. No changes to our estimates.

• The group reported a net profit of RM195mil (-3.6% QoQ; +30.2% YoY) in 2Q19. On a QoQ basis, earnings were softer due to lower net income from the takaful business and slightly higher provisions for financing losses and debt securities. For 6M19, earnings grew 23.5% YoY to RM398mil attributed to higher net income partially offset by increase in operating expenses. Total net income climbed 16.2% YoY for 6M19 underpinned by high fundbased income from Bank Islam’s financing growth of 7.2% YoY, coupled with better income contribution from its insurance subsidiary, STKM. The performance of the family takaful business was stronger in 6M19 due to the increased sales of credit-related insurance products.

• We deem BIMB’s 6M19 earnings as within expectations, making up 56.1% and 53.0% of our and consensus estimate respectively.

• Gross financing growth moderated to 7.2% YoY (1Q19: 8.5% YoY; 4Q18: 8.9% YoY). Net financing growth was 7.3% YoY (1Q19: 8.7%YoY) and continued to be higher than the industry’s expansion of 4.2% YoY. The slowdown in loan momentum was due to the moderation of consumer financing growth of 7.2% YoY (1Q19: 8.5% YoY) while commercial and corporate financing slowed down to +6.8% YoY and 7.7% YoY respectively (1Q19: 8.7% YoY and 10.1% YoY). 2Q19 saw a slower pace of house and personal financing at 9.7% YoY and 7.3% YoY respectively. Meanwhile, vehicle financing contracted by 12.8% YoY while growth in outstanding credit card receivables remained modest at 3.5% YoY. The group is still on track to meet its FY19 loan growth target of 6.0–7.0%.

• YTD net income margin (NIM) contracted 7bps to 2.56% in 2Q19 contributed by higher funding cost. QoQ, the impact was a 4bps decline in NIM due to the recent OPR cut of 25bps in May 2019. Any margin compression will be temporary as the group’s deposits are largely expected to be repriced lower after 1 to 2 quarters. The bulk of Bank Islam’s customer deposits have a maturity of 3–6 months in tenure. Management is guiding a NIM of 2.52% for FY19 barring any further interest rate cut.

Source: AmInvest Research - 29 Aug 2019