BIMB sounded cautious during our discussion recently. Key-takeaways include: (i) reiterating its elevated 35bp FY22 NCC guidance, (ii) changing its NFM target to 2.2%, (iii) keeping 8% loans growth expectation for the year, and (iv) sharing its non-fund based income remained weak sequentially in 2Q22. Overall, we cut FY22-24 net profit estimates by 5-9%. Despite the lukewarm near-term outlook, it is already well reflected in valuations, trading currently close to -2SD. This is one of the rare banking stock under our coverage that trades at such depressed level and thus, making it attractive. Also, structural long-term growth prospects are bright and intact. Retain BUY call but with a lower GGM-TP of RM3.00 (from RM3.30), based on 0.89x FY23 P/B.

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

Steady asset quality. BIMB’s financing repayment assistance (RA) remains relatively unchanged at <5% of its books (vs 5-6% in Mar-22). Broadly speaking, asset quality held up well; there were no chunky waning business accounts but personal financing displayed some uptick while 2-3 commercial clients were parked under watchlist (still actively servicing their obligations) within the consumer goods and property business segments. Nonetheless, BIMB stood by their conservative FY22 net credit cost (NCC) guidance of 35bp (1Q22: 30bp) but alluded 27-28bp is a more reasonable run-rate (in line with our projection of 28bp).

Better showing at the top. Management guided FY22 net financing margin (NFM) of 2.2%, although it travelled at a pace of 2.3% in 1Q22; this marks a 19bp compression against FY21 vs our +2bp estimates. We understand BIMB considered only one OPR hike and every 25bp rise in OPR, bumps up NFM by 8bp on an annual basis. So far, we have seen two rate increases and expect another uplift in Sep-22. Besides, CASA ratio still hovers at c.38% (1Q22: 38.6%) and management guided to print 39-40% in FY22. Also, financing growth target of 8% for FY22 was intact (1Q22: +6.7%), after it glanced through recent performance (driven by mortgage and personal financing); this is higher than our current +6% estimates.

Other key updates. Non-fund based income in 2Q22 remained weak (flattish QoQ), again due to sluggish treasury and market showing. However, BIMB expects 2H22 to recover as MGS 10-year yield has slid to 3.9% from recent peak of 4.4%. Separately, management guided FY22 cost-to-income ratio to come in at 56% (1Q22: 56%). Also, BIMB hinted 2Q22 quarterly profit is likely to trend below RM130m (1Q22: RM106m); however, this could potentially bounce back to the RM130-150m/quarter run-rate level from 3Q22 onwards.

Forecast. We reduce FY22-24 net profit estimates by 5-9% to account for softer non fund based income.

Retain BUY call but with a lower GGM-TP of RM3.00 (from RM3.30), following our profit cut. This is based on 0.89x FY23 P/B (from 0.97x) with the assumptions of 8.9% ROE (from 9.4%), 9.6% COE, and 3% LTG. This is beneath its 5-year mean of 1.12x but ahead of sector’s 0.92x. The discount/premium is fair considering its ROE output is 2ppt/1ppt below/above its 5-year average/industry. Despite the lukewarm near-term outlook, it is already well reflected in valuations, trading currently close to -2SD. This is one of the rare remaining banking stock to trade at such depressed level and thus, making it attractive. Also, structural long-term growth prospects are bright and intact.

Source: Hong Leong Investment Bank Research - 11 Aug 2022