BIMB’s newly appointed CEO, Encik Khairul Kamaruddin gave his maiden briefing last week at an analysts’ post-results briefing. While the focus on selective asset growth and preserving asset quality are maintained, the new CEO also outlined his vision of delivering outcomes coupled with sustainable positive impact to the economy, community and environment.

A new CEO, added strategic Initiative. At the post results briefing last week, new CEO, Khairul Kamaruddin, outlines the Group’s strategy moving forward. While maintaining its focus on i) Cautious asset & Balanced growth, (ii) Preserving asset quality and (iii) Capital Efficiency, he added 2 new strategic agenda; (i) Value Based Intermediary (VBI) whereby BIMB to deliver outcomes that generate positive and sustainable impact to the economy, community & environment and (ii) Emphasis on digitalisation whereby new initiatives would carry the Group into the disruptive age via; (a) strategic collaboration with fintech companies via a revenue sharing model, (b) digital transformation on channels, processes, productivity % analytics, (c) building digital capability and (d) setting a digital banking division (with collaboration with Cognizant a global business & technology firm). The setting is expected to accelerate and enhance its SME Banking and at the same attracting a new generation of millennials customers’ to its digital experience. 8% financing growth to be maintained. Management’s target of 8% growth in financing for FY17 still holds (1H17: 11% YoY) maintaining its portfolio mix of 75% retail and 25% corporate/commercial (1H17: retail/Corp & Commercial at 78%/22%) but still focus on selective quality. Target of 8% is maintained as management expects contraction in financing in the 3Q mostly from corporates (focusing on debt funding & placement of shares in anticipation of a hike in OPR in the medium term). For 1H17, financing was driven by consumer with commercial flat and corporate down due to lumpy repayments and redemptions. Enhancing profitability via higher-yielding assets. To combat the expected lower financing, focus will be on building higher-yielding assets via its SME portfolio. SME and start-ups will be the main focus areas which are expected to contribute significantly to its CASA growth. Profitability will be supported by minimising Net Financing Margin (NFM) compression as BIMB builds its deposits to meet its liquidity coverage ratio (LCR) and Net Stability Funding Requirements (NSFR). Defending its NFM, deposits growth (in 1HFY17) was curtailed via transfer to Investment Account (IA) which gives lower yields. No significant impact in its Cost-to-Income ratio (CIR) with its foray with Cognizant as capex involved and the added revenue stream will enhance profitability. No issues on Asset Quality. Management does not see asset quality to be an issue moving forward with its O&G exposure and avoidance of upstream activities. Management sees downstream activities picking up but at the same time does not foresee oil prices picking up soon in 2017.

Forecast. We expect solid consistent earnings ahead as the group treads cautiously and selective ahead. We maintained our earnings forecast for FY17 (RM583m) as we maintained our FY17 conservative estimates; (i) Financing/Deposits (include IA) growth at +8/+9%, (ii) credit charge ratio of 26bps (previously 30bps), and (iii) NFM compression by 6bps.

No change in TP with a MARKET PERFORM call. Our GGM-TP is maintained at RM4.54. This is based on a 1.8x FY18E P/B where we employed: (i) COE of 9.2%, (ii) FY18E ROE of 14.5%, and (iii) terminal growth of 2.5%. With a potential total return of <9%, we maintain BIMB at MARKET PERFORM.

Source: Kenanga Research - 6 Sept 2017