We make no changes to our FY18E numbers as BIMB 6M18 results are in line with our/market estimates. We maintain our TP of RM4.90 and OUTPERFORM call given its doable loans target and attractive ROE.

In line. BIMB 6M18 CNP of RM322.0m is in line, accounting at 53%/51% of our/consensus estimates. No dividend declared as expected as a final dividend is usually declared in 3Q, a trend since 2016.

YoY looking good. 6M18 CNP grew by +12.3% YoY, with broad- based top-line (+6.5% YoY) with credit costs and opex well contained. Top-line was supported by Income from Takaful Business and Income from Investment of Depositors & Shareholders’ fund which rebounded +6% and +8% YoY, respectively, with the latter supported by strong investment income from shareholders’ funds which rebounded 16% YoY (vs. net income from investment of depositors at 3%). The weaker income from investment of depositors was due to slower loans at +7% YoY (vs. guided/expected of +8% YoY vs. system loans of +4% YoY) with NFM falling by 8bps to 2.3% (vs. our expectations of flattish margins) despite CASA improving by 1ppt to 33%. CIR fell 2ppt to 54% (vs. industry’s 48%) as opex was well contained, growing at 3%. Asset quality improved with GIL falling by 5bps to 1% with credit charge stable at 17% (vs. our expectation of 25-30bps). QoQ is a disappointment as CNP fell 13% dragged by falling top-line (-3%). Income from Takaful Business was a disappointment, falling 16% but Income from Investment of Depositors & Shareholders’ fund rebounded 3% driven by rebound in Investment income from shareholders’ funds (+15%), Financing improved further at 2% but NFM fell 6bps to 2.3% (Q1 boosted by OPR hike). As asset quality improved, credit charge fell by 6bps to 0.20%.

Loans target to maintain. We understand that BIMB’s loan target will still be maintained at 8% with management expecting growth coming from corporates, based on their current healthy pipeline with household and personal financing expected to remain resilient (1H18: +13% and +12% YoY, respectively). 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. FY18 Net Financing Margin (NFM) is expected to be flattish (with the issuance of the CAGAMAS bonds) and higher CASA (1H18 surpassing its CASA target ratio of 30%), boosted by improving low costs transactional Investment Account with lending rate to be resilient and better with the traction in personal financing. Risks on asset quality are downplayed with 57% of its financing secured (4Q17: 56%) and financing loss coverage up 18ppts YoY to 178%.

Earnings maintained. Our FY18E earnings are maintained at RM606m on account of; (i) lower loans of ~8%, (ii) flattish NFM, and (iii) CIR of 60%, and (iv) credit costs of 25-30bps.

TP and OUTPERFORM call maintained. Our TP of RM4.90 is based on a blended FY19E PB/PE ratio of 1.5x/11.9x with PB at 1SD-level below the 5-year mean to reflect the risk of uncertainty on the domestic/external front. OUTPERFORM call stayed as its higher loans target with a forward ROE of >13% (vis-à-vis HLBANK with a forward ROE of 11%) makes it a more attractive proposition.

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

Source: Kenanga Research - 28 Aug 2018