BIMB’s 1Q18 net profit was above our estimate due to broad-based revenue growth drivers ranging from net interest income to fee income growth. As such, revenue growth was commendable, expanding 5.3% qoq and 9.0% yoy. This, coupled with wellcontrolled opex led to a strong 15.6% yoy growth in pre-provision operating profit. Maintain BUY and target price of RM4.85 (13.2% 2018F ROE, 1.64x 2018F P/B). The stock is currently trading at an attractive 1.33x 2018F P/B vs 13.2% ROE.

RESULTS

• In Line. BIMB Holdings (BIMB) reported 1Q18 net profit of RM172.1m (+13.9% yoy, 15.0% qoq) that was broadly in line with our estimate. 1Q18 earnings represented 26.8% of our fullyear estimate. Earnings were driven by strong net interest income growth of 8.6% as a result of above-industry loans growth of 6.8% coupled with 3bp expansion in NIM from the recent OPR hike, commendable Takaful revenue growth of 9.8% and fee income growth of 16.0% yoy. Opex growth was relatively well-contained at 4.1%, thereby leading to solid 15.6% yoy growth in pre-provision operating profit. As such, cost-to- income ratio improved to 54.5% in 1Q18 vs 57.1% in 1Q17 and 65.7% in 4Q17. 1Q18 revenue growth was commendable at +9.0% yoy and 5.3% qoq, driven by the above mentioned drivers.
• Impact of MFRS9. Day 1 adoption of MFRS9 resulted in a 31% yoy increase in provisions taken through the balance sheet via retained earnings which consequently led to a 36bp qoq decline in fully-loaded CET1 to 12.2% as its regulatory reserves were not sufficient to fully meet the higher provisions and BNM’s minimum impairment + provisions buffer equivalent to 1.0% of Stage 1 and Stage 2 loan exposure at default. Post adoption of MFRS9, the group’s loans loss coverage ratio has increased to a very comfortable 176.3% inclusive of regulatory reserves vs 160% 4Q17. Its high LLC inclusive of regulatory reserve buffer has allowed the group to sustain a relatively low net credit cost of 20bp in 1Q18 vs our full-year estimate of 25bp.
• Slight uptick in GIL mitigated by high LLC. Gross impaired loans (GIL) increased 7.2% qoq in 1Q18 after having improved 8.7% qoq in 4Q17 with GIL ratio increasing to 0.99% in 1Q18 from 0.93% in 4Q17, driven mainly by lumpy construction-related loans. GIL of its consumer loans portfolio which forms the bulk of the group’s loans base (76%) was relatively stable at 0.70% (4Q18: 0.67%).
• Addressing exposure to civil servants personal loans segment. Management has indicated that civil servants personal loan composition which consists of approximately 15% of the group’s loans base is not affected by the new government’s recent move on not to renew the contract of 17,000 government contract workers as the group’s civil servants loan portfolio consist of permanent staffs where risk of lay off is lower.

EARNINGS REVISION/RISK

No changes.

VALUATION/RECOMMENDATION

Maintain BUY with unchanged target price of RM4.85 (13.2% ROE, 1.64x 2018F P/B). Valuations remain attractive at 1.40x 2018F P/B (sector: 1.42x) with ROE being the second highest among its peers.

Source: UOB Kay Hian Research - 31 May 2018