BIMB results were within expectations, with 1Q18 net profit of RM172m (+15% QoQ, +14% YoY), making up 26.9% and 26.2% of our full year forecast and consensus. Bank Islam financing growth continued to outpaced system loan growth at 6.7% YoY. This further assisted by healthy net financing margin expansion by 3bps. In Takaful segment, STMB supreme business model in Family and General Takaful further helped its strong PBT. We reiterate our BUY rating on BIMB with TP of RM4.90, derived from (i) COE of 11% and (ii) WACC of 7.3%.

Results in line. BIMB off to a good start in FY18. 1Q18 net profit of RM172m (+14% YoY, 15% QoQ) was within expectations, making up 26.9% and 26.2% of our and consensus full-year net profit forecasts.

Dividend. No dividend was declared during the quarter.

QoQ. BIMB strong net profit growth (+15%) was led by higher PBT contribution from both Bank Islam (+17.8%) and Takaful segments (+46%). Higher PBT from Bank Islam was chiefly from fund-based income, which was further assisted by lower overhead expenses. STMB’s PBT, on the other hand was mainly assisted by higher net wakalah fee income.

YoY. Net profit of RM171.9m (+14%) in 1Q18 was pursuant to the result in the Bank Islam and Takaful. As for Bank Islam, despite higher net impairment financing surged more than 100% to RM21.2m, it was offset by higher recoveries of RM12.4m which led to financing charge of -5bps (vs. -2bps at end Mar-17). Within the Takaful segment, STMB continued to post 3 consecutive quarters of PBT growth. This was led by higher wakalah income in both Family and General Takaful businesses, attributed to the higher sales in both segments.

Bank Islam. Financing grew healthily by 6.7% YoY to RM42.4bn and this was underpinned by strong growth in construction (+10% YoY) and household sectors (+10.6 YoY). Household financing continued to be anchored by house financing, however it was partially negated by the ease in vehicles financing. Higher average liabilities were mitigated by recent rate hike, which has in turn resulted in higher net income spread (by 3bpsQoQ to 2.63%). Asset quality was still holding up well at 0.99% (vs. 0.93% in 4Q17 and 0.95% in 1Q17). However, there are signs of weaknesses in the corporate and commercial segments, which IL ratio increased to 1.91% (from 1.7% at end Dec-17).

Takaful. STMB’s 1Q18 PBT of RM85.8m (+18.2% YoY) was supported by higher wakalah fee income across Family and General Takaful businesses. Higher claim in the Family Takaful (+10.1% YoY) segment was mitigated by higher net earned contribution. Meanwhile within General Takaful segment, higher gross earned contribution (+27.2% YoY) was more than offset by the surge in net benefits and claim (+16.4% YoY).

Forecast. We leave our forecast unchanged.

Maintain BUY, TP: RM4.90. BIMB continued to chart strong growth in the Takaful segment owing to its long establishment history and supreme business model. As for Bank Islam, despite the moderation in the financing growth, Bank Islam continued to outpace average loan growth in the banking system. We maintain our BUY rating, at unchanged of RM4.90, derived from GGM of i) WACC of 7.3% and (ii) COE of 11%.

Source: Hong Leong Investment Bank Research - 31 May 2018