BIMB finished the year on a high with 4Q18 net profit jumping 8% YoY; this was boosted primarily by positive Jaws as both its Islamic banking and Takaful operations performed well. Overall, results met expectations. In 2019, we still see steady NFM and asset quality. Besides, financing growth is predicted to stay above industry average and its Takaful business is anticipated to remain rosy. Forecasts are unchanged. On top of good fundamentals, valuations-wise it is also cheap. Retain BUY with GGM-TP of RM5.00, based on 1.52x 2019 P/B.

Met expectations. BIMB posted 4Q18 net profit of RM161m (+8% YoY, -19% QoQ). In turn, this carried 2018 bottom-line to RM682m (+10% YoY), meeting expectations whereby it made up 98-100% of our and consensus full-year estimates.

Dividend. None declared as 4Q is usually not a payout period.

QoQ. Earnings fell 19% on the back of negative Jaws whereby opex growth (+8%) outstripped the flattish total income. Also, this was dragged by higher finance cost at the group level (+37%). We noticed net financing margin (NFM) narrowed by 4bp to 2.61% as well. However, robust performance by its Takaful business provided a nice offset (+11%).

YoY. The quicker acceleration in total revenue (+15%) vs overhead expenses (+4%), drove bottom-lime expansion of 8%. Net financing income rose 11% while contribution from its Takaful operations was strong (+39%).

YTD. Not surprising, net profit (+10%) on a YTD basis, also benefited from positive Jaws. Both its net financing income and Takaful operations grew 8% and 22% respectively. This lifted total revenue by 12% and was ahead of its opex expansion of 5%.

Other key trends. Financing growth remained strong at 8.9% YoY, backed by robust deposits growth of 9.3% YoY. In turn, BIMB’s financing-to-deposits ratio has inched down to below 90% (-6% sequentially), it is one the lowest under our coverage. Besides, asset quality stayed robust as gross impaired financing ratio were below the 1% level (-5bp QoQ), again, among the lowest in the sector.

Outlook. NFM is expected to remain steady as management had revised up its base rate and base financing rate by 13bp back in November 2018; we are forecasting flattish NFM in 2019-20. While for financing, we see growth to largely sustain within the 6-7% range over the next 2 years as BIMB focuses on augmenting its personal lending business, which we believe has demand resiliency. Also, we do not foresee a major deterioration in asset quality but assumed a slightly higher 2019-20 net credit charge of 22-27bp (2018: 18bp) to be conservative.

Forecast. Unchanged as 4Q18 results were within estimates.

Maintain BUY and GGM-TP of RM5.00, based on 1.52x 2019 P/B with assumptions of 13.9% ROE, 10.6% COE, and 4.0% LTG. This is in line to its 5-year mean of 1.56x but above the sector’s 1.18x. The premium is fair given its 3ppt above-average ROE generation. Currently, BIMB’s valuations are undemanding, trading at -1SD to its 5- year mean P/B and P/E. Besides, from our reverse SOP assessment, we calculated the market is only valuing Bank Islam at 1.03x P/B with ROE of 11.8%. This is cheap given that peers are fetching 1.18x P/B with ROE of 10.0%.

Source: Hong Leong Investment Bank Research - 1 Mar 2019