BIMB’s 9M17 core earnings of RM470.2m is in line, accounting for 80% of our/consensus estimates. Forecast earnings unchanged, MARKET PERFORM call reiterated with an unchanged GGM-driven TP of RM4.54.

In line. BIMB 9MFY17 CNP of RM470.2m is within expectations, accounting for 80% of both our/market full-year estimates. However, BIMB did show stronger compression in Net Financing Margin (NFM) but stronger credit recovery (vs. expectation of credit charge ratio of 0.26%). The declared interim dividend of 14.0 sen is also a surprise but in line for FY17.

Strong financing but offset by NFM compression. YoY, 9MFY17 CNP grew by 8% attributed mainly to a credit recovery of RM10m vs. impairment losses of RM88.2 a year before. Top-line was soft as income from Investment of Depositor’s & Shareholder’s Funds was flat offset by moderate performance from Takaful business (+4%). Investment of Depositor’s & Shareholder’s Funds income was flat as NFM compressed by 19bps (vs. expectation of 6bps) as financing grew by 8% (within expectation/guidance and above industry’s 5.3%). The 19bps compression was due to yield falling faster than average cost of funds (16bps vs 2bps). Cost to Income ratio (CIR) was higher by 200bps at 57% (vs. industry average of 48%) as opex surged ahead by 5%. Improvement in asset quality seen with GIL, which fell by 2bps to 1.1% (vs. industry’s 1.7%) with a writeback of RM10m for the period under review. Takaful PBT contribution is still the same at 27% as both Takaful and banking business saw PBT growth of 9% each. QoQ, 3QFY17, earnings were stellar, rising by 35% underpinned by a credit recovery of RM43.8m (vs 2QFY17 credit loss of RM25.1m) and lower tax rate by 3ppts to 25%. Top-line was abysmal with Takaful business and income from Investment of Depositor’s & Shareholder’s Fund falling by 2% and 4%, respectively. Investment of Depositor’s & Shareholder’s Funds income was dragged by falling financing (-1%) with NFM compressing by 18bps.

Still selective ahead. Our view on tight loan growth and downside pressure on NFM still holds for 2017. Recall that earlier, management guided for a cautious year as NFM will be facing downward pressure with competition for longer-term deposits (to meet high Net Funding Stability Ratio by 2018 as required by BNM under Basel III). Thus, we believe the strategy for 2017 still holds namely; (i) selective assets growth, (ii) balancing growth and net income, and (iii) defending NFM. Although Islamic Financing is still in demand, management is adopting a moderate growth target of ~8% for FY17 (with financing slowing down in the last quarters, we view that this strategy still holds) in order to defend its NFM margin.

Forecast. No change in our earnings forecast for FY17/FY18 (RM582.7m/RM646.7m) as results are in line with our estimates.

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 utilised: (i) COE of 9.2%, (ii) FY18E ROE of 14.5%, and (iii) terminal growth of 2.5%. In view of selective asset growth of <8%, we maintained BIMB at MARKET PERFORM.

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

Source: Kenanga Research - 4 Dec 2017