Post management meeting recently, we maintain our conservative FY18E/FY19E earnings with loans target of ~8% based on the view that BIMB’s financing direction is skewed to the still resilient Household segment. The stock is undemanding, trading at 1.0SD below its 5-year mean. Hence, we reiterate OUTPERFORM with a TP of RM4.90 maintained.

Loans target to maintain. Post GE14, we understand that BIMB’s loan target will still be maintained at 8%. Recap, earlier this year BIMB had set a ~10% target which was revised in May 18 on post GE14 concerns and moderate contribution from corporates. Corporate contribution has been declining since late 1Q18 as corporate repayments outpaced corporate disbursements but household segment has remained resilient. Management reiterated that its loans portfolio is mostly for small-to-mid size ticket items. Exposure to construction stocks are mostly to the small to mid-cap stocks. As of 1Q18, exposure to the construction sector is at ~5%, significantly lower from its highs of ~9% in 3Q12. In the last 5 years, average contribution from the construction portfolio was at ~6%. This low exposure also helps to stabilize its asset quality.

Housing portfolio unlikely to be expanded. We view that the bank’s property portfolio is unlikely to be expanded in light of the government’s recent stance to address the affordability and stringent financing

issue faced by first-time house buyers. We understand that BIMB will still focus on selective asset as it did in the last two years with the primary focus on defending its asset quality. Although the Group’s asset quality has been impressive with GIL at <1%, with credit charge at <30bps, we view that the Group will still be mindful of potential economic volatility (impacting credit charge assessments) and is thus unlikely to risks expanding household portfolio.

Low-cost funding a drag. While concerns have been on its ability to comply with the Net Stability Funding Ratio (NSFR) by end of 2018, we understand its issuance of RM1.5b CAGAMAS bonds (due by 3Q/4Q) are expected to comply with NSFR, thereby putting additional pressure on funding costs. At present, management is satisfied with the traction in individual and retail CASA, although challenges remain in retail CASA due to competition but it remains confident in maintaining its target of CASA/deposit ratio of 30%. Although Net Financing Margin (NFM) expanded in 1Q18 (due to the OPR hike in June 18), management expects 2018 Net Financing Margin (NFM) to be flattish (with the issuance of the CAGAMAS bonds) with the prospect of no further rate hike for the rest the year.

Earnings maintained for FY18/19. We see no reason to change our earnings forecast as we feel our assumptions are conservative enough. Our FY18E earnings are maintained at RM606m on account of: (i) lower loans of ~8%, (ii) flattish NFM, and (iii) CIR of 60% (from 56% previously).

TP and OUTPERFORM call maintained. Our TP of RM4.90 is based on a blended FY19E PB/PE ratio of 1.6x/11.9x. This is based on the 0.5SD-level below the 5-year mean to reflect the risk of growing loans post GE14 and uncertainties in the global trade. We feel this is justified given that the stock has been trading around 0.5SD-1.0SD below mean in the last 18 months in an environment of single-digit loans growth. The stock is trading at its 5-year average PB/PE of 1.4x/10.2x (1SD below mean) which is undemanding and undervalued. Although its 1.4x P/B seems pricey (vs. the industry average of 1.2x P/B) its forward ROE of 13% (vis-à-vis HLBANK 1.6x P/B with a forward ROE of 11%) makes it a more attractive proposition.

Source: Kenanga Research - 27 Jul 2018