BIMB’s 2Q22 earnings jumped 11% QoQ due to robust total income growth and lower bad financing provision. Also, NFM expanded sequentially and financing growth gained traction. However, GIF ratio saw an uptick. Overall, results were broadly within expectations and hence, we left FY22-24 forecasts unchanged. Despite the weak performance, valuations are inexpensive, where the stock is currently trading close to -2SD. In turn, this makes it one of the rare remaining banking stock to trade at such depressed level. Besides, structural long-term growth prospects are bright and intact. Retain BUY call and GGM-TP of RM3.00, based on 0.89x FY23 P/B.

Broadly in line. BIMB registered 2Q22 earnings of RM117m (+11% QoQ, -40% YoY), bringing 1H22 sum to RM223m (-37%). We deem results to be largely in line, despite forming only 44-45% of our and consensus full-year forecasts, as we expect stronger 2H22, lifted by better top-line growth.

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

QoQ. Net profit increased 11%, thanks to robust total income growth (+ 5%) and lower bad financing provision (-22%). At the top, net financing margin (NFM) widened 4bp, gross financing grew 1.5%, while non-financing income nudged up 3%. However, the higher opex (+6%) and effective tax rate (+1ppt) capped earnings from growing faster.

YoY. The decline in non-financing income (-33%) along with higher opex (+14%) and effective tax rate (+10ppt), dragged bottom-line down by 40%.

YTD. Earnings fell 37% due to weak non-financing income (-26%), higher opex (+8%), financing loss allowances (+69%), and effective tax rate (+8ppt).

Other key trends. Both financing and deposits growth gained traction to +8.0% YoY (1Q22: +6.7%) and +13.6% YoY (1Q22: +10.8%) respectively. That said, financing-to-deposit ratio was down 2ppt sequentially to 86%. Separately, gross impaired financing (GIF) ratio rose 12bp QoQ to 1.14% due to weakness at the retail, manufacturing, and transport-related segments.

Outlook. Following Jul-22’s OPR hike, NFM is seen to continue expand sequentially. However, the magnitude may be capped by downward CASA mix normalization. That said, financing growth is anticipated to chug along for now, given economic recovery is strong. Also, the recent down trending MGS yield is seen to provide some respite to its non-financing income showing over the short term. Separately, GIF ratio is likely to rise but we are not overly worried, since BIMB has already made heavy pre-emptive provisioning in FY20-21 to cushion this impact. Moreover, FY22-23 NCC assumptions built in by both us and consensus are still fairly elevated (above the normalized run rate but below FY20-21’s level).

Forecast. Unchanged since 2Q22 results were largely in line.

Retain BUY and GGM-TP of RM3.00, based on 0.89x FY23 P/B with assumptions of 8.9% ROE, 9.6% COE, and 3.0% LTG. This is beneath its 5-year mean of 1.12x and the sector’s 0.92x. The discount is fair considering its ROE output is 2ppt/1ppt below its 5-year average/industry. Despite the sluggish showing, valuations are inexpensive, where the stock is currently trading close to -2SD. In turn, this makes it one of the rare remaining banking stock to trade at such depressed level. Moreover, structural long term growth prospects are bright and intact. Thus, we believe the risk-reward profile is skewed to the upside.

Source: Hong Leong Investment Bank Research - 1 Sept 2022