BIMB’s 1H16 core earnings of RM279m (+5.0% YoY) was within expectations, accounting for 47%/49% of our/consensus estimates. The improvement in earnings was due to higher-thanexpected financing growth with upticks in Net Financing Margin. Surprisingly, no dividends were announced for the quarter. We expect BIMB to be resilient going forward; thus, a slight revision upwards in our forecast earnings. TP is revised to RM4.25 (from RM4.18 previously) but MARKET PERFORM call is maintained.

1H16 core earnings improved as both income from investment of depositors and shareholders’ funds registered double-digit growth for the period. In the banking business, gross financing was robust (+17% YoY) coupled with improved Net Financing Margin (NFM) and cost of credit flattish. Improvements can also be seen on QoQ basis with net income improving (after falling in the preceding quarter) due to lower credit cost despite asset quality was weaker QoQ as per gross impaired financing ratio (GIF)... (but improved YoY falling 13bps to 1.05%).

6M16 vs. 6M15, YoY

• Top line improved by +11.0% (6M15: 5.4%) driven by improvements across the board: (i) Net Income (NII) at +11.0% (6M15: +2.9%); (ii) Income from investment of depositors and shareholders’ funds at +11.0% (6M15: +2.9%) and Net Income from Takaful business at +11.0% (6M15: +1.0%).

• Islamic Banking Business

• PBT improved +2.7% (6M15: +0.8%).
• Net Financing Margin improved 7bps to 2.3% as financing yields outpaced cost of funds (COF) by 4bps.
• Gross financing and advances (F&A) were still resolute at +16.7% (6M15: +16.8%) vs. our expectations of +12% against deposits (including Investment Accounts, IA) decline of 2.7% (6M15: +15%) which led to financing-to-deposit ratio (FDR) surging by 14ppts to 88.5%. We anticipated deposits growth of +5.7%.
• Financing was still driven by housing & fixed assets financing (+24.8%) and personal financing at +8.5%). Financing was still mainly from individuals (6M16: 73.4% vs 6M15: 75.4%). Financing to SME’s contributed only 2.3% of total financing (6M15: 2.3%)
• Current account & savings account (CASA) rose 3ppts to 37.1% of total deposits and still above the Islamic Banking industry’s CASA ratio of 25%.
• Asset quality showed improvement as gross impaired financing ratio (GIF) decreased 13bps to 1.05%, lower than the Banking System’s ratio of 1.66%. Annualised credit charge ratio was flattish at 0.37% vs. our expectation of 0.25%. Financing loss coverage was at 178.7%, improved by 11ppts (vs. industry’s LLC of 89.5%).

• Takaful business

• PBT was up by 3%, attributed to: (i) net earned contribution surging by 17.1% but negated by higher net benefits & claims (+19.7%) and higher opex (+23.7%).
• At the group level, CIR rose 2ppts to 55.3% against our expectation of 54.4% (vs. industry’s 49.7%) as opex outpaced total income by 4%.
• Annualised ROE fell by 2ppts to 15.4% (vs. our estimates of 16.4%) as growth in shareholders’ equity (+15.5%) outpaced CNP growth.
• CET1 and Total Capital improved by 50bps and 160bps well above the regulatory level of 7.0% (CET1) and 10.5% (Total Capital), respectively.

Source: Kenanga Research - 29 Aug 2016