Post-meeting with management yesterday, we downgrade BIMB to MARKET PERFORM given that its yield offerings are not as attractive as before. Our newly derived GGM-TP is RM4.24. Keytakeaways from the meeting were: (i) new IA guideline woes were resolved, (ii) looking to open nine new branches, (iii) takaful business to chug along, and (iv) FY15 guidance was unveiled.
New IA guideline woes were resolved. Management shared that BIMB is adhering to the new Investment Account (IA) guideline. Presently, only ~19% of its total deposits comprise of Mudharabah accounts (vs. 2013: ~62%) where majority of them have already been converted to Tawarruq contracts (2014: ~43% vs. 2013: 0%).
In the mood of expansion. To further gain stride in the local Islamic banking scene, BIMB is looking to open nine new branches, to bring the total branch network to 150 this year. We understand that it will cost ~RM1m in capex to set up a new branch. On regional aspiration, BIMB may look to make a foray into Indonesia under the ASEAN Banking Integration Framework.
Takaful business to chug along. Given that the insurance and takaful industry is highly competitive, BIMB will notbe revising up the pricing of its general takaful products when GST kicks in. Furthermore, management shared that the negative impact arising from this is minimal.
FY15 guidance. Management unveiled its FY15 guidance: (i) financing growth of 15%, (ii) deposits growth of 10%, (iii) financing-todeposit ratio (FDR) to hit 80%, (iv) cost-to-income ratio (CIR) to remain unchanged at ~55%, (v) net financing margin (NFM) to contract by ~13bpts, (vi) asset quality to remain stable (gross impaired financing ratio of <1.5%), and (v) dividend payout (DPR) of at least 50% from net profit.
Forecasts. We nudged up our FY15/FY16 earnings forecasts by 1.2%/0.8% to RM549m/RM567m. This comes after imputing: (i) higher FY15/FY16 financing growth of 4ppts to 12%/10% as we reckon that BIMB is capable to push for slightly quicker financing growth given its relatively low FDR of 74%, (ii) lower FY15/FY16 NFM by 5bpts to 2.37%/2.33% given higher cost of funds from the switchover to Tawarruq accounts, as well as (iii) lower FY15/FY16 CIR by 1ppts to 55% as we were too conservative previously. Notably, we also toned down our DPR assumption to 50% from 60%.
Risks.The key risks are: (i) steeper margin squeeze, (ii) slower-thanexpected financing and deposits growth, as well as (iii) worse-thanexpected deterioration in asset quality.
Valuation & recommendation. After lowering our DPR forecasts, we find that BIMB’s yield of ~4% is not as alluring as before. Hence, we are downgrading BIMB to MARKET PERFORM (from OUTPERFORM). Our new GGM-TP of RM4.24 (from RM4.72) is based on 2x FY15 P/B (previously 2.26x) where we employed: (i) COE of 10.1% (previously 9.2%), (ii) FY15 ROE of 17.1% (previously 17%), and (iii) terminal growth of 3% (unchanged). To further support our new valuation yardstick, we have conducted a Fwd P/B vs. Fwd ROE regression analysis for banks in Malaysia (ex-PBBANK) and the results shows that BIMB should trade at 2x Fwd P/B as well.
Source: Kenanga Research - 25 Mar 2015
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