Investment Highlights

• BIMB Holdings (BIMB), through its various subsidiaries, provide financial services which are well diversified and syariah-compliant. The group is involved in Islamic banking through Bank Islam, insurance via Syarikat Takaful Malaysia (STMB) as well as investment banking and ijarah leasing business through BIMB Securities and Syarikat Al-Ijarah respectively.

• Our basis for investment in BIMB is premised on the following:

i. Bank Islam is the Malaysia’s 3rd largest Islamic bank in terms of assets after Maybank and CIMB Islamic. Capitals of the group and bank entity are at comfortable levels with a fully loaded CET1 ratio of 10.0% and 12.7% respectively.

ii. Consistent earnings of the group.

iii. Its improving asset quality. Consumer financing dominates, making up 76.8% of its total gross total loans. These comprised largely of house financing which are well secured and personal financing against the salary deduction of the borrowers.

iv. High floating rate loans (88.9% of total financing) which will benefit the group positively from the increase in domestic interest rate.

v. Gradual improvement in earnings of general and family takaful businesses under STMB.

vi. Tie-ups with banks for bancatakaful will be an impetus to the growth in takaful earnings.

vii. Healthy claims ratio of its family and general takaful at 55.7% and 46.7% respectively.

viii. Consistent surplus position of its takaful funds.

ix. The restructuring of STMB will eventually result in its composite licence to be surrendered. It will be converted into two separate licences for family and general takaful to be held by two distinct entities, consequently allowing for better control, risk management and ensuring adequacy of capital for the insurance businesses.

x. Healthy ROEs of 12-13% expected in FY18-19.

xi. Decent dividends. BIMB and Bank Islam (both at entity level) have a dividend payout policy of at least 50% of its net profits. BIMB's dividend reinvestment plan (DRP) allows investors an option to reinvest their dividends into additional shares to ride on the growth of the group's earnings.

xii. We value BIMB at RM4.80/share based on FY18 P/BV of 1.7x, supported by an ROE of 12.8% and cost -to-equity of 9.1%. Our forward P/BV is in line with the stock's 5- year historical average P/BV of 1.74x. We initiate coverage on BIMB with a BUY call.

Source: AmInvest Research - 21 Mar 2018