Highlights

• Held briefing. We attended BIMB’s post-results briefing and walked away feeling positive on its newly laid strategies to revitalize its moderating loan growth. BIMB is targeting 8% loan growth in FY17.

• Inaugural meeting with new CEO. BIMB took the opportunity to introduce new Group and Bank Islam CEO, Mr. Khairul Kamarudin. Mr. Khairul outlined several new strategies namely 1) entering the SME segment, and 2) strengthening digitalization effort.

• Entering SME segment. While BIMB could be among the last to compete in this space, we feel that there is still ample opportunities especially within the boundary of government related agencies. BIMB will leverage on its connection with various government agencies such as SMECorp, Biotech Corporation to become the preferred SME financier. We understand that BIMB aims to cover the SME universe ranging from startups to full-fledged SMEs. On a positive note, BIMB board has already approved the plan to venture into the SME segment.

• Digitization effort. BIMB has cemented a partnership with Cognizant, an American company that provides IT services listed in the NASDAQ-100 and the S&P 500 indices. We understand that BIMB would not incur any opex and capex from this tie-up as it is based on revenue-sharing concept. We are positive as the tie-up would enable BIMB to attract more SME and corporate financing, potentially diversifying its concentration in the household financing which currently stood at 74% of total financing.

• Reducing O&G exposure. BIMB has reduced its exposure in the O&G from 9.5% in FY15 to 8.7% as at Jun-17. Out of RM3.6bn financing to the O&G sector, only RM53.7m was impaired, translating into 1.5% impaired ratio.

Risks

• New regulatory on Investment Account, economic slowdown and high household debt.

Forecasts

• Unchanged.

Rating

BUY ( ↔ )

• We laud BIMB’s efforts to shift its concentration from household financing and leverage on technologies to promote its products. We believe the new strategies outlined will enable BIMB to revitalize its loan growth as both SME and digitalization offer huge potential of source of income. We remain confident on a decent showing by BIMB in its FY17 financing growth.

Valuation

• Maintain TP at RM5.00. Our TP is derived using Gordon Growth valuation model based on (i) WACC of 7.2% and (ii) ROE of 15%. Maintain BUY rating.

Source: Hong Leong Investment Bank Research - 6 Sept 2017