BIMB’s 9M16 core earnings of RM419m (+8.0% YoY) is within expectations, accounting for 72%/74% of our/consensus estimates. The improvement in earnings was due to better top line growth with upticks in Net Financing Margin. Surprisingly, no dividends were announced for the quarter. We reiterate our view of BIMB staying resilient going forward and maintain our earnings forecasts. TP of RM4.25 and MARKET PERFORM call are maintained.

9M16 core earnings improved as both income from investment of depositors and from Takaful business registered double-digit growth for the period at 11% and 15%, respectively. Operating expenses (opex) continues to be challenging, rising by 11%. In the banking business, gross financing was still robust (+15% YoY vs. ours (+14.2%) & industry (+4.2%)) coupled with improved Net Financing Margin (NFM) by 15bps to 2.3%. Deposits (which include Investment Account) was at +7% YoY. Asset quality was mixed as gross impaired financing ratio (GFIR) improved by 5bps to 1.09% but credit costs nudged 10bps to 0.32%.

QoQ, bottom line declined by 2% dragged by falling top line (-2%) despite opex falling (-3%) and credit costs lower by 11bps to 0.24%. Deposits (including Investment Account) were outpaced by financing vs. ours (+2.5) & industry growth +0.8%) which led to gross financing to deposit ratio surging by 6ppts to 87.4%. Asset quality for the quarter deteriorated slightly as GIF nudged 4bps to 1.09%

Resilient Financing & Advances. BIMB’s financing growth at 15% is still resilient mirroring its FY15 growth (at +16%), surprising since the compositions of its financing are mostly to individuals (74% of total financing). The surge in deposits is not a surprise, as its Investment Account (IA) has grown to nearly RM2.2b by 9M16, 10% more than management’s target of RM2b. We believe that the improved NFMs is attributed to the higher quantum of IA, which lowers the COF. We maintained our assumptions; (i) Financing/Deposits (include IA) growth for FY16E/FY17E at +14.0/+2.5% for FY16E and financing/deposits at +15%/+5.1 (for FY17E), (ii) credit charge ratio of 0.30%/0.25% for both FY16E/FY17E, and (ii) NFMs compression by 5bps to 2.3% for FY16E and an upward tick of 5bps for FY17E as we expect lower COF due to higher IA quantum.

No change in earnings forecasts. Our FY16E/FY17E earnings are maintained at RM592m/RM592m.

TP and MARKET PERFORM call maintained. Our GGM-TP is maintained at RM4.25 This is based on a 1.8x FY17E P/B where we utilised: (i) COE of 9.5, (ii) FY17E ROE of 15.0 %, and (iii) terminal growth of 2.5% (unchanged). MARKET PERFORM call is maintained as the challenging environment might give rise to subdued financing and further deterioration in asset quality.

Downside risks to our call are: (i) lower-than-expected margin squeeze, (ii) lower-than-expected loans and deposits growth, and (iii) worse-than-expected deterioration in asset quality.

Source: Kenanga Research - 01 Dec 2016