BIMB’s 1H18 net profit of RM370.8m (+13% YoY) accounted for 58% our and consensus full-year forecast. We consider the results within expectations as we expect 2H to come in lower (vs. 1H) on higher IT-related expenses. Bank Islam financing growth climbed 6.7% YoY in 1H18 driven by consumer (+10.5% YoY) and commercial (+10.7%). STMB’s 1H18 net profit advanced 18% YoY, driven from higher wakalah fee income from both family and general takaful, however this was partially mitigated by higher fair value losses of RM53.2m. No change to our earnings forecasts, derived from (i) COE of 13.6% and (ii) WACC of 8.2%.

Results in line. BIMB’s 1H18 net profit of RM370.8m (+13%) accounted for 58% of ours and consensus full-year forecasts. We consider the results within expectations as we expect 2H to come in weaker (vs. 1H) on the back of higher IT-related expenses. Stronger results was attributed to stronger contribution from both Bank Islam and Takaful segments, however it was partially offset by higher finance cost.

Dividend. No dividend was declared during the quarter.

QoQ. 2QFY18 net profit was weaker by 13% to RM170.3m due to weaker contribution from both Takaful (-16%) and Bank Islam (-6.4%).

YoY. Despite higher finance cost by 37.6% YoY caused by sukuk murabahah, net profit advanced by 12% to RM170.3m on stronger contribution from both Takaful (+7.9%) and Bank Islam (+18%), and lower net allowance charges (-40.3%).

YTD. Despite higher finance cost and opex (+8.9%), net profit grew by 13% to RM370.8m, underpinned by stronger results from both Bank Islam and Takaful, which increased by 9% and 12.5% respectively. The increase in opex was mainly driven from promotion related cost (19.6% YoY) and personnel cost (+2.6%). Cost-to-income ratio, declined to 54.6% (vs. 56.4% a year ago) as higher personnel cost was more than mitigated by income growth.

Bank Islam. Despite one corporate account redeeming its financing, Bank Islam financing growth climbed 6.7% in 1H18. The growth was led primarily by consumer (+10.5%) and commercial (+10.7%) segments, but moderated by corporate segment (- 17.4%). In contrast, GIL weakened to 0.97% (from 0.90% a year ago) due to one particular account in the construction sector. However we understand that the account has turned into performing since early 3QFY18. On deposits front, deposits declined by 4.6% yoY and this was distorted by Bank’s Islam’s move to shift RM1.5bn worth of deposits to Cagamas in preparation for NSFR. Including this RM1.5bn of deposits, total deposits grew 8.2% YoY. Net income margin expanded by 9bps YoY to 2.65%, resulting from higher asset yields. Moving forward, Bank Islam is aiming to focus more on personal segment for its total financing growth, which will in turn result in sustainable net income margin in FY18 at 2.65%.

Takaful. STMB’s 1H18 net profit advanced by 18% YoY, driven from higher wakalah fee income from both Family and General takaful segments. However, this was partially negated by higher fair value losses of RM53.2m. In Family takaful, gross earned contribution grew 4.5%, driven from mortgage-related products, and further assisted by stable net claim which grew 2.6% YoY on the back of higher medical claims. In General takaful, gross earned surged by 25.6% YoY to RM272.8m but was partly negated by higher claim which rose by 39.7% YoY (related to claim in fire and motor).

Forecast. We leave our forecast unchanged as we expect BIMB to accelerate its expenses in the IT related areas in the 2H18, due to its digitalization efforts.

Maintain BUY, TP: RM4.90. Maintain BUY recommendation with unchanged TP of RM4.90 based on GGM valuations of (i) COE of 13.6% (ii) WACC of 8.2%. Bank Islam’s financing growth has consistently outpaced system loan growth (given its exposure in the retail segment, in particular, government staff, which have superior asset quality) while STMB’s earnings are still at growth stage given its lion share in the Family and General Takaful segment.

Source: Hong Leong Investment Bank Research - 28 Aug 2018