After an analysts’ briefing yesterday, we raised our TP to RM4.30 (previously RM4.07) for BIMB but maintain our MARKET PERFROM call. At the briefing, while reviewing its FY15 results, management also gave guidance on its key operating metrics for FY16.

Review of Results. To recap, BIMB reported a net profit of RM547m for FY15, a gain of 3% driven by a 16% growth in financing. Impairments have been well contained with impaired financing falling by 5bps to 1.09% as financing growth outpaced impairments at +11%. In terms of personal financing, impairments were at 0.95%. On a sectorial basis, decline in impairments can be seen in the manufacturing and construction sector at -13% and -22% whilst the household sector financing impairments grew by 29% or at 49% of total breakdown (FY14: 42%). Exposure to the O&G sector is less than 10% of which 8% are retail financing related.

Moving forward. As 2016 is expected to be a challenging year, management will focus on a defensive mode by reshaping its liability mix and diversifying funding & customer base. Management will seek to diversify its funding mix by expanding its Investment Account for Customers (IA) which was launched in June 2015 and as at Dec 2015 registered RM676m in the liabilities account. The IA gives lower cost of funding compared to customers deposits which management expects will support minimising NFMs compression (IA mix to total funding is 2% in FY15). Management expects to grow its IA to RM2b in FY16 (contributing 4.3% to total funding) through aggressive expansion to retail customers. With the prospect of higher unemployment looming, safeguarding asset quality will be through proactive collection & preventive actions to minimise delinquency with the virtue having the experience in handling the Malaysian Airlines retrenchment.

Management gave their growth guidance for FY16 with: (i) financing around the lower teens (as management seeks quality assets, (ii) deposits & IA growth at around 5%, (iii) credit costs at around 22bps, and (iv) minimal compression on NIMs.

Forecast earnings revised. With this new guidance, we have revised our assumptions for FY16E/FY17E such as financing growth at 12% for both FY16E/17E (maintained) and Deposits & IA growth at 5.5%/5.0% for FY16E/17E (previously at 6% for both). Our funding growth is lower as management strives to target financing to funding ratio (deposits & IA) at around 80% (FY14:80%), credit charge ratio of 0.25% for both FY16E/17E (previously 0.3%). There is no change to our forecast of a NIM compression by 10bps to 2.2% for FY16E but seen stabilizing in FY17E (previously at 2.1% FY17E) as we expect stiff price-based competition to linger. Our FY16E/FY17E earnings are revised slightly upwards by 2.6%/4.7% to RM589m/RM606m.

TP raised to RM4.30 with MARKET PERFORM. Post-briefing our GGM-TP is now at RM4.30 (vs. RM4.07 previously). This is based on 1.9x FY16E P/B (unchanged); we utilised: (i) COE of 10.1% (unchanged), (ii) FY16E ROE of 16.5 % (previously FY16E ROE of 16.3%), and (iii) terminal growth rate of 3% (unchanged). Its valuation is already expensive with a 1.6x P/BV against its peers’ P/BV of 1.5X, thus, we maintain Market Perform.

Source: Kenanga Research - 3 Mar 2016