Investment Highlights

• We maintain our HOLD call on BIMB Holdings (BIMB) with a revised fair value of RM3.90/share (previously RM3.60/share) based on higher SOP valuation (Exhibit 5). We fine-tune our FY20/21 net profit by 0.4%/4.0% as we raise our net income margin assumptions as well as our credit cost estimate for FY20 to 0.40% from 0.30%.
• The group reported a core net profit of RM131mil (-42.3% QoQ) in 3Q20 excluding the modification loss net of tax of RM74.5mil in 2Q20. The decline in QoQ earnings was contributed by higher operating expenses and pre-emptive impairment provisions in the form of management overlay set aside in 3Q20.
• 9M20 saw a modestly higher underlying net income (before direct expenses and provisions) of 4.1% YoY to RM2.49bil, partially offset by higher allowances for loan losses and overhead expenses. Underlying 9M20 earnings at RM568mil (-6.3% YoY) were within our expectation, accounting for 80.5% of forecast but was slightly above consensus estimates at 82.6% of street projection.
• Bank Islam (BI), BIMB’s 100% subsidiary, recorded a higher RM212mil impairment allowances on financing for 9M20 vs. RM87mil in 9M19. Underlying net income margin of BI excluding modification loss declined 4bps QoQ to 2.26% in 3Q20. We believe this was due to the 25bps OPR cut in July 2020. Excluding the modification loss, the YTD income margin contracted by 13bps to 2.38%.
• BI’s gross financing moderated to 11.8%YoY from 12.1% YoY in the preceding quarter (net financing growth: 11.7% YoY), still higher than the industry’s expansion of 4.4% YoY. Consumer and corporate loans expanded strongly by 10.8% YoY and 26.0% YoY respectively in 3Q20 (2Q20: 7.5% YoY and 67.8% YoY). Meanwhile, commercial loans grew by 7.2% YoY.
• For consumer loans, house and personal financing remained key contributors with a growth of 9.3% YoY and 15.0% YoY (2Q20: 7.6% YoY and 10.2% YoY) respectively. Meanwhile, growth in outstanding credit card receivables contracted by 6.9% YoY while that of vehicle financing was flat at -1.8% YoY.
• Growth of CASA and transactional investment account continued to pick up pace with a YTD growth of 16.2%. This lifted the CASA ratio to 37.3% in 3Q20.

Source: AmInvest Research - 1 Dec 2020