Defensive play. After hitting target price 2 (TP2 @ RM3.26) of our BIMB Technical tracker report on Dec-21 (report), the stock had retreated 10% from the 52-week high of RM3.26 to RM2.91 yesterday, making it a laggard against peers, which we deemed as a good opportunity to accumulate. Given rising external headwinds such as: (i) prolonged Russia-Ukraine war that worsened the global supply chain crisis; and (ii) potentially slower global GDP growth and corporate earnings expectations, continued to weigh market sentiment, we reckon KLCI is going to stay choppy in the short-term. This would incentivise investors to de-risk through investing into counters that have low <1.0 beta yet providing decent upside and dividend yield. In this respect, we believe BIMB, which has a better asset quality among small-sized banks while providing decent upside and dividend yield, is deemed a good proxy.

Like other banks, BIMB will benefit from the OPR hike cycle with economic recovery. To recap, HLIB is expecting a +25bps rate hike in OPR to 2% in 2H22 and real GDP to advance +5.5% in 2022 on the back of Malaysia's transition to endemicity. Tracking the economic recovery trend, we expect 2022 system loan to grow by +4.5-5.0% YoY as leading indicators (loan application) gaining momentum. Despite being well-positioned in multiple tailwinds, BIMB stock performance had been lacklustre (YTD: -2.6% vs KLFIN YTD: +7.5%), making it one of the worst-performing banks stock.

Grossly priced in. To recap, BIMB's 4QFY21 earnings was hit by higher loan loss provision for an O&G company, triggering a sell-down as the investment fraternity was caught off guard with the negative development. We believe the market has baked this name into forecasts and valuations, which in turn, limit shocks and surprises in upcoming financial performance. In any case, we are glad the blow up happened now rather than later, since BIMB is poised to be punished by the Prosperity tax this year.

Building a base. By looking at BIMB’s past one year chart pattern, whenever BIMB staged a consolidation breakout (after 56-60 days consolidating), the stock may register 15-19% return. Technically, BIMB is building a base near the RM2.90 or 200D MA area. A decisive breakout above RM2.98 (1 Apr high) will spur the price toward RM3.15-3.26- 3.45. Cut loss at RM2.83.

Source: Hong Leong Investment Bank Research - 13 Apr 2022