Period

4Q15/12M15

Actual vs. Expectations

BIMB’s 12M15 earnings of RM547m (+3% YoY) was above our expectations, representing 107%/104% ours/consensus estimates. The improved performance was due to a 16% YoY growth in financing.

Dividends

No dividend was declared for the quarter leaving total DPS for FY15 at 12.2 sen as declared in the 2Q and 3Q.

Key Results Highlights

12M15 vs. 12M14, YoY

On a consolidated basis, net earnings growth of 3% was helped by higher total income (+8%).

Total income was driven: (i) net income from takaful business (+18%), and ii) income from investment of depositors & shareholders’ funds (+4%).

Islamic banking business  PBT declined by 2.0%.  Net Financing Margin fell by 20bps to 2.2%.  Gross financing and advances (F&A) grew at +16% (vs. ours at +17%) against deposits growth of 6% (ours at 5.0%) which led to financing-to-deposit ratio (FDR) surging by 5ppts to 79%.  Current account & savings account (CASA) fell by 3ppts to 35% of total deposits but still above the Islamic Banking industry’s CASA ratio of 25%.  Asset quality showed improvement as gross impaired financing ratio (GIF) decreased 5bps to 1.09%, lower than the Banking System’s ratio of 1.6%. Annualised credit charge ratio fell by 1bps to 0.21% vs our expectation of 0.22%.

Takaful business  PBT rose 10%, thanks to: (i) higher net earned contribution (+7%), and (ii) smaller surplus attributable to takaful operator/participants (-24%).

At the group level, CIR rose 1bps to 57% against our expectation of 55% (vs. industry’s 45%) as opex outpaced total income at +10%.

Annualised ROE fell by 2ppts to 17% (above our estimates of 16%).

CET1, Tier 1 fell by 15bps to 12.1%, but capital strengthened by 1.9ppts to 15.3%, still well above the regulatory level.

4Q15 vs. 3Q15, QoQ

Net profit surged 35% on the back of: (i) surging net income by 36% from Takaful business, and (ii) lower tax rate at 11% vs. 34% in 3Q15.

NFM was flattish at 2.2%.

FDR fell 2ppts to 81 % as deposits advanced faster than F&A (+9% vs. +6%).

CIR advanced 40bps to 60% as total income (+13%) was outpaced by opex (+14%).

Asset quality improved as: (i) GIF decreased 5bps to 1.09%, credit charge was at 0.23% vs. credit recovery of 0.07% in the 2Q.

Financing loss coverage (FLC) was up by 3ppts to 175%.

Outlook

We do expect F&A growth to taper on the back of the challenging economic conditions. Thus, we reduced our FY16E financing growth estimate to 12% (from 15% previously) and for FY17E nudge it by 1ppts to 13%. We also maintained our conservative deposit growth of 6% for FY16E and maintained for FY17E.

NFM is reduced to 2.2% from 2.3% for FY16E given the stiff price-based competition for financing and deposits in the market. For FY17E, we reduce by another 10 bps to 2.1%.

To err on the conservative side, we still assumed FY16E CIR at 55% and for FY17E, we assume the same.

As for asset quality, given the prevailing condition of higher costs of living, we raised the credit costs to 9bps to 0.3% for FY16E and maintained the same ratio for FY17E.

Change to Forecasts

With the latest assumptions, we revised FY16 estimates by 0.6% to RM574m (+5% YoY) and introduced our FY17 estimates at RM578m (+1% YoY).

Rating

Maintain MARKET PERFORM

Tapering growth prospects is a drag to share price’s performance. Nevertheless, BIMB is still the only listed Shariah-compliant banking stock on Bursa and it offers decent yields of ~5%.

Valuation

We arrive at a new GGM-TP of RM4.07 (vs. RM4.09 previously). This is based on 1.9x FY16E P/B (unchanged); we utilised (i) COE of 10.1% (unchanged), (ii) FY16E ROE of 16% (previously FY16E ROE of 17%), and (iii) terminal growth rate of 3% (unchanged).

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 - 29 Feb 2016