Period

3Q15/9M15

Actual vs. Expectations

BIMB’s 9M15 earnings of RM385.4m (+1.8 YoY) is within our/consensus expectations, representing 70%/71% of full-year forecasts. The inline performance was due to 18% YoY growth in financing.

Dividends

An interim DPS of 12.2 sen/share was declared.

Key Results Highlights

9M15 vs. 9M14, YoY

On a consolidated basis, net earnings growth of 1.8% was helped by higher total income (+4.7%) and lower provisions for impaired financing at RM50.6m (-9.9%).

Total income was driven: (i) net income from takaful business (+13.4%), and ii) income from investment of shareholders’ funds (+4.5%).

Islamic banking business  PBT grew by 4.6%.  Net Financing Margin fell by 20bps to 2.2% as net financing spread dropped by 38bps.  Gross financing and advances (F&A) grew at 17.7% (vs ours at 12.0%) against deposits growth of 4.9% (ours at 5.0%) which led to financing to deposit ratio (FDR) surging by 9ppts to 82.8%.  Current account & savings account (CASA) fell by 2.5ppts to 35.4% of total deposits but still above the Islamic Banking industry CASA ratio of 25.6%.  Asset quality showed improvement as gross impaired financing ratio (GIF) decreased 4bps to 1.14%, lower than the Banking System’s ratio of 1.62%. Annualised credit charge ratio fell by 7bps to 0.22% vs our expectations of 0.37%.

Takaful business  PBT rose 9.7%, thanks to: (i) higher net earned contribution (+8.1%), and (ii) smaller surplus attributable to takaful operator/participants (- 26.7%).

At the group level, CIR fell by 60bps to 55.4% in line with our expectations of 55.4% (vs industry’s 49.9%) as total income growth outpaced opex at +3.6%.

Annualised ROE fell by 2ppts to 16.8% (below our estimates of 18.5%).

CET1, Tier 1 fell by 70bpts to 11.3%, and capital ratios dropped by 30 bpts to 13.4%. 3Q15 vs. 2Q15, QoQ

Net profit fell 7.8% on the back of: (i) declining net income by 7.4% from Takaful business and (ii) higher opex by 8.2%.

NFM contracted 8bps given stiff price-based competition in the market.

FDR surged 8.9ppts to 82.8% as deposits declined faster than F&A (-7.6% vs. +3.6%).

CIR advanced 5.6ppts to 59.7% as total income (-2.0%) decelerated vs. higher opex (+8.2%).

Asset quality improved as: (i) GIF decreased 4bps to 1.14% and (ii) credit recovery of 7bps.

Financing loss coverage (FLC) was up by 5ppts to 171.8%.

Outlook

We expect F&A growth to taper on the back of the challenging economic conditions. As the Group achieved stellar performances in F&A, we nudged it up by 5ppts to 17% for FY15 (9M15: +17.7%) and for FY16 we increase it by 3ppts to 15%. We maintained our deposit growth 5% for FY15E/FY16E (9M15: +4.9%).

NFM is reduced to 2.2% from 2.4% (9M15: 2.20%) given the stiff price-based competition for financing and deposits in the market. For FY16, we still maintained it at 2.3%.

To err on the conservative side, we still assumed FY15E CIR at 55.4% (9M15: 55.4%) and for FY16, we reduced CIR by 80bps to 54.6%.

As for asset quality, it should remain stable in FY15 as the bank seeks out new creditworthy customers. Thus, we reduced our FY15E credit cost by 3bps to 0.22% (9M15: 22bps) and maintained the same ratio for FY16E.

Change to Forecasts

With the revised assumptions, our FY15E/FY16E earnings are revised by -7%/-1% to RM511.6m/577.4m.

Rating

Maintain MARKET PERFORM

Tapering growth prospects is a drag to share price performance. Nevertheless, BIMB is still the only listed Shariahcompliant banking stock on Bursa and it offers decent yields of ~4.5%.

Valuation

We arrive at a new GGM-TP of RM4.09 (vs. RM4.20 previously). This is based on 1.9x FY16E P/B (previously 1.8x FY16E P/B); we utilised (i) COE of 10.1% (unchanged), (ii) FY16 ROE of 17.0% (previously FY16 ROE of 15.6%), and (iii) terminal growth rate of 3% (unchanged).

The higher P/B multiple is to reflect higher growth and slightly stronger ROE generation moving forward.

Risks to Our Call

Steeper margin squeeze from tighter lending rules and stronger-than-expected competition.

Slower-than-expected financing and deposits growth.

Higher-than-expected rise in credit charge as result of a potential up-cycle in non-performing loan (NPL).

Source: Kenanga Research - 1 Dec 2015