BIMB’s 1Q21 core earnings fell 21% QoQ, no thanks to negative Jaws, printed a financing loss provision (instead of net writeback), and higher effective tax rate. Also, NFM slipped QoQ and GIF ratio saw an uptick. However, financing growth held steady. Overall, results were within expectations; hence, no change to our forecasts and we introduced FY23 estimates. We still like BIMB for its positive long-term structural growth drivers & better asset quality among smaller-sized banks. Maintain BUY with a higher GGM-TP of RM5.20 (from RM5.00), based on 1.23x FY22 P/B.

Within expectations. Excluding 4Q20’s modification loss, BIMB registered 1Q21 core earnings of RM203m (-21% QoQ, -3% YoY). This was within expectations, making up 23-25% of our and consensus full-year forecasts.

Dividend. None declared as BIMB only divvy in 3Q.

QoQ. Negative Jaws from slower total income growth of 1% vs opex’s 8%, along with financing loss provision of RM12m (vs a net writeback of RM4m in 4Q20) and higher effective tax rate (+9ppt) caused core net profit to decrease 21%. Also, net financing margin (NFM) contracted 8bp to 2.41%.

YoY. Core bottom-line ticked down 3%, again no thanks to negative Jaws (where total income fell 2%, while opex increased 2%). However, this was cushioned by lower bad financing allowances (-62%).

Other key trends. Both financing and deposits held steady at 9.6% (4Q20: +10.7%) and 11.3% YoY (4Q20: +10.6%) respectively. In turn, sequential financing-to-deposit ratio (FDR) ticked up 4ppt to 93%. As for asset quality, gross impaired financing ratio increased 4bp QoQ to 0.71% mainly due to the household sector.

Outlook. For Islamic Banking, we expect NFM to remain stable premised on no OPR cut (since it is already at an all-time low) coupled with benign deposit rivalry in 2021. Separately, financing growth is seen to chug along despite Covid-19 glooms as BIMB grabs market share from peers. Although GIF ratio has inched up, we are not overly concerned as BIMB has made heavy pre-emptive provisioning in FY20 and we reckon credit risk has been adequately priced in by the market, looking at the high NCC assumption applied for FY21 by both us and consensus (above the normalized run rate but below FY20’s level). Besides, we believe the Government & BNM will remain supportive in helping troubled borrowers, limiting a significant slump in GIF ratio. As for its Takaful business, it is well positioned to ride the Islamic finance wave & positive structural industry dynamics, in the longer-term.

Forecast. Unchanged as 1Q21 results were largely within estimates. Introduced FY23 estimates.

Maintain BUY call but with a higher GGM-TP of RM5.20 (from RM5.00), as we roll valuations to FY22. The TP is based on 1.23x P/B (from 1.30x) with assumptions of 12.1% ROE (from 12.8%), 10.4% COE & 3.0% LTG. This is in line to its 5-year mean of 1.23x but ahead of the sector’s 0.89x. The premium is fair given its ROE generation is 3ppt above industry average. We still like BIMB for its positive long -term structural growth drivers and better asset quality among smaller-sized banks.

Source: Hong Leong Investment Bank Research - 28 May 2021