BIMB’s 4Q21 net profit was down 44% YoY due to negative Jaws and elevated provision for impaired financing. Besides, GIF ratio deteriorated. That said, NFM widened sequentially and financing growth held up well. Overall, results missed expectations and thus, we cut FY22-23 profit by 11-20% to account for earnings miss, softer top-line growth, higher financing loss provision, and prosperity tax . We still like the stock for its positive long-term structural growth drivers, better asset quality vs smaller-sized peers, and inexpensive valuations. Maintain BUY and GGM-TP of RM3.45, based on 1.02x FY23 P/B.

Below estimates. Stripping away modification loss, BIMB registered 4Q21 core net earnings of RM116m (+14% QoQ, -44% YoY), bringing FY21 sum to RM571m (-14% YoY). This was below expectations, making up 84-86% of our and consensus full-year forecasts; key variance came from higher-than-expected financing loss provision.

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

QoQ. Core profit was up 14%, thanks to better total income (+22%) and reversal of deferred tax expense; these helped to mask the drag from bad financing allowances (+3-fold). At the top, we saw encouraging performance due to robust financing growth of 4% and net financing margin (NFM) expansion of 2bp.

YoY. Negative Jaws (opex growth outpaced total income by 11ppt) and the elevated provision for impaired financing dragged core bottom-line down by 44%.

YTD. Similar to YoY performance, the decline in core earnings (-14%) was caused by negative Jaws (opex grew 10% while total income fell 1%) and higher financing loss allowances (+9%).

Other key trends. Financing and deposits growth held up well at +6.5% YoY (3Q21: +3.8%) and +6.8% YoY (3Q21: +9.3%) respectively. As for financing-to-deposit ratio, it nudged down 1ppt sequentially to 87%. Separately, gross impaired financing (GIF) ratio jumped 28bp due to bigger NPL formation at the construction segment.

Outlook. We expect sequential NFM to hold steady at current level before contracting again due to deposit rivalry. That said, this is seen to expand when BNM hikes OPR later this year. Also, financing growth is anticipated to chug along given economic recovery. On a separate note, GIF ratio is likely to creep upward but we are not overly worried as BIMB has made heavy pre-emptive provisioning in FY20-21 and in our opinion, credit risk has been adequately priced in by the market, looking at the still elevated NCC assumption employed for FY22 by both us and consensus (above the normalized run-rate but beneath FY20-21’s level).

Forecast. We cut FY22-23 net profit by 11-20% to account for earnings miss, softer top-line growth, higher financing loss provision, and prosperity tax.

Reiterate BUY with GGM-TP of RM3.45, after rolling our valuations to FY23. The TP is based on 1.02x P/B (unchanged) with the assumptions of 9.7% ROE (from 10.2%), 9.6% COE, and 3.0% LTG. This is beneath its 5-year mean of 1.16x but ahead of the sector’s 0.92x. The discount/premium is fair considering that its ROE generation is 2ppt/1ppt below/above its 5-year average/industry. We continue to like the stock for its positive long-term structural growth drivers, better asset quality among smaller-sized banks, and inexpensive valuations.

Source: Hong Leong Investment Bank Research - 1 Mar 2022