With earnings exceeding expectations, we raised slightly our TP and reiterate OUTPERFORM given its achievable loans target, attractive ROE and lower credit charge.

Above expectations. BIMB’s 9M18 CNP of RM521m is above expectations, accounting for 86%/82% of our/consensus estimates. The positive deviation is attributed to higher-than-expected financing with lower-than-expected impairment allowances. A DPS of 15.5 sen was declared, (vs. expectations of 14.4 sen).

Strong financing. YoY, 9M18 CNP grew +10.7%, aided by broad- based top-line (+11.5%), mitigated by impairment allowances (RM62m vs 9M17: RM10m write-backs) and higher opex (+5.0%). Top-line was supported by Income from Takaful Business and Income from Investment of Depositors & Shareholders’ fund, which surged ahead at +9.5% and +16.5%, respectively, with the latter supported by strong investment income from shareholders’ funds, which rebounded +17% and net income from investment of depositors at +7.3%. The strong income from investment of depositors was attributed to financing growth of +10.5% (vs. guidance expectations of +8% and system loans of +5.7%) and slight enhancement in NFM (net financing margin) of 1bps to 2.3% despite CASA falling by 3ppts to 30.4%. Due to strong top-line, CIR saw an improvement falling by 3ppts to 53.9% (vs. industry’s 47%). Asset quality improved for the period as GIL fell 10bps to 0.97% and credit charge of 0.19% (vs. expectations of 0.26%).

QoQ, Q3 saw a better performance as CNP rebounded, surging +32.5% to RM198.6m, aided by a strong top-line of +12.9%. Income from Takaful Business rebounded to +24.5% to RM227m) with Income from Investment of Depositors & Shareholders’ fund continues to grow to +8.4% (to RM521m) aided by rebound in Income from investment of depositors (+12.3%). Financing continued to improve (+2.4%) with NFM surging by 25bps to 2.5% due to higher lending yields in Q3 while cost of funds contained. Asset quality was mixed as GIL was stable at 0.97% but credit charge surged 10bps to 0.24%.

Maintained financing target of 8%. We believe its financing target of +8% YoY for FY18 still holds with growth coming from households mortgage and personal financing (PF) which continued to gain traction at +12.4% and +12.1% YoY, respectively. The traction in PF is partly due to its strategy of rebalancing its PF to 50% of households financing (3Q18: 43%). The traction in PF saw better NIM aided by optimising treasury yields. With NSFR fully complied, we understand that better NIM enhancement is expected for next year assuming financing target of 7-8% is maintained and PF rebalancing is complied, aided by improving low costs transactional Investment Account. We believe the traction into PF and mortgage is valid as asset quality is consistently stable and impairment allowances have been below guidance and expectation. We believe the uptick in credit charge is mainly due to the transition into MFRS9 and expect the credit charge of 9M18 will be the new norm and spilling into FY19.

Earnings revised. Our FY18E/FY19E earnings are revised by 13%/10% to RM686m/RM751m on account of; (i) financing of ~8%/8% (unchanged), (ii) flattish NFM/5bps enhancement (unchanged), (iii) CIR of 56%/56% (from 60%/60%), and (iv) credit costs of 26bps for both (unchanged).

TP revised and OUTPERFORM call maintained. TP revised slightly to RM4.95 (from RM4.90) based on a blended FY19E PB/PE ratio of 1.5x/11.9x (unchanged) 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 >14% (vis-à-vis HLBANK with a forward ROE of 11%) makes it a more attractive proposition.

Source: Kenanga Research - 29 Nov 2018