Management’s tone was guarded during our recent discussion. Generally, BIMB shared that: (i) FY21-22 NCC is within its 30-35bp guidance, (ii) NFM is poised to shrink, (iii) financing growth is tapering but still a tad above industry average, (iv) CIR is likely to inch up, and (v) new dividend payout is at c.50%. Overall, we cut FY21-23 profit by 6-13% to strip away Syarikat Takaful’s income contribution and group level finance cost from sukuk retirement. We still like the stock for its positive long-term structural growth drivers and better asset quality amongst smaller-sized banks. Maintain BUY call but with lower GGM-TP of RM3.45 (from RM4.80), based on 1.02x FY22 P/B.

We spoke to management recently for some operational updates. In general, the tone was guarded.

FY21-22 NCC guidance of 30-35bp intact. BIMB’s financing repayment assistance (RA) now makes up 45% of its books (vs Aug-21: 42%). At first glance, it is worrisome but was quickly dispelled by management, claiming that most RA was taken up given its easy availability and not because many of their borrowers saw loss of employment or heavy pay cuts. We understand 50% of its retail financing portfolio are Government and GLC employees. Besides, 60-70% of its personal financing segment are salary deduction packages while for mortgage is >70%. Moreover, the B40 group constitutes only <10% of its consumer book. As such, its prudent FY21-22 net credit cost (NCC) guidance of 30-35bp (1H21: 16bp) is intact; we have imputed 27-31bp into our model for both FY21-22.

Softer FY21 top-line but recovery is seen in succeeding year. Management is still keeping its FY21 net financing margin (NFM) guidance at 2.2-2.4%, despite travelling at mid-2.4% in 1H21 due to competitive deposit pricing at its corporate segment; this marks a 1-21% compression against FY20 vs our estimates of -13bp. However, the FY21 financing growth guidance of +7% has been toned down to +3-4% (in line with our +4% projection); this is still a tad quicker than the expected sector average 3-3.5% expansion. For FY22, we anticipate NFM to broaden 2bp on the back of an OPR hike some time next year and financing growth of +6% given economic recovery.

Other key updates. Given its robust customer profile mix, management believes that the 3 months interest waiver scheme under the Financial Management and Resilience Program (URUS) will not see strong sign-ups and materially impact BIMB. Separately, the 53% FY21 cost-to-income ratio guidance was maintained, despite booking 51% in 1H21; this is due to the gradual ramp-up in digital spending and higher employee cost. As for dividends, BIMB is looking at 50% payout going forward, instead of c.35% pre corporate restructuring exercise.

Forecast. After stripping away Syarikat Takaful’s income contribution and group level finance cost due to the retirement of its sukuk, we lower FY21-23 earnings by 6-13%. As for the Prosperity Tax, we view it as a one-time event and hence, not baking it into our financial model; in any case, it is estimated to have a 10% drag on headline FY22 earnings performance.

Maintain BUY call but with lower GGM-TP of RM3.45 (from RM4.80), following our downward revision in earnings. The TP is based on 1.02x FY22 P/B (from 1.16x) with assumptions of 10.2% ROE (from 10.6%), 10.0% COE (from 9.6%), and 3.0% LTG. This is below its 5-year mean of 1.19x but ahead of the sector’s 0.88x. The discount/ premium is fair considering that its ROE generation is 2ppt/1ppt beneath/above its 5- year average/industry. We still like the stock for its positive long-term structural growth drivers and better asset quality among smaller-sized banks.

Source: Hong Leong Investment Bank Research - 18 Nov 2021