Investment Highlights

• We maintain our HOLD call on BIMB Holdings (BIMB) with unchanged fair value of RM3.60/share based on SOP valuation. We fine-tune our FY21 net profit by 2.3% to factor in a slightly higher loan growth assumption.

• The group reported a core net profit of RM251mil (+19.9% QoQ) in 2Q20 after excluding the modification loss of RM98mil. The improved QoQ underlying earnings were attributed to higher revaluation gains from FVTPL securities which lifted its income derived from investment of shareholders’ funds and lower overhead expenses.

• 6M20 saw a modestly higher underlying net income (before direct expenses and provisions) of 3.4% YoY to RM1.63bil, partially offset by higher allowances for loan losses and overhead expenses. Although the core cumulative earnings accounted for 65.0% and 68.4% of our and consensus estimate respectively, we deemed it to be within expectation. We expect net profit margin to be further lowered with another rate cut of 25bps in 2H20 which we have factored into our estimates as well as provisions to rise in the near term with the review of macroeconomic variables (MEVs) for the expected credit losses following the weaker 2Q GDP numbers.

• Bank Islam (BI), BIMB’s 100% subsidiary, posted a higher RM57mil impairment allowances on financing for 6M20 vs. RM53mil in 6M19. This was due to higher net allowances charged for impairment on financing by RM2.5mil and lower bad debt recoveries by RM6.2mil. Net income margin of BI fell by a steep 54bps QoQ to 1.84% in 2Q20 while YTD (June 2020), margin slipped 41bps to 2.10%. Excluding the modification loss, the contraction in income margin will be lower at 8bps QoQ to 2.30% in 2Q20 and -11bps YTD to 2.40%. The group is now guiding for a net income margin of 2.2% excluding modification loss for FY20.

• BI’s gross financing rose to 12.1% YoY from 9.3% YoY in the preceding quarter (net financing growth: 12.1% YoY), still higher than the industry’s expansion of 4.1% YoY. Consumer and corporate loans expanded by 7.5% YoY and 67.8% YoY respectively (1Q20: 5.9% YoY and 48.0% YoY).

Source: AmInvest Research - 28 Aug 2020