We attended BIMB’s 1HFY21 results briefing which left us feeling optimistic with the bank’s near-term trajectory. Although there is a slight delay in its restructuring plans from end-Sept to early-Oct 2021, other guidances remain firm with some cautionary notes on financing growth in lieu of economic weakness. The high TRA proportion of 42% of total financing is not expected to raise any hairs, in management’s point of view. Maintain OP and SoP-driven TP of RM5.10.

PEMULIH not a big bruiser. Under PEMULIH, the group is said to have reached a TRA proportion of 42% of its total financing, from less than 10% in 2QFY21. However, this is still below management’s anticipated 50% mix, partly due to the moratorium being opt-in in nature. Arising from this, management is also confident that modification losses for 3QFY21 will range between RM50m- RM60m. However, management does accept that part of the underlying issue is economic uncertainty which has led some accounts to seek deferment for liquidity.

Competition in financing and deposit markets could ramp up, as the market would have come to normalise and fully adjust product pricing from a stagnant OPR since Jul 2020. That said, management believes normalisation would come but it should not affect them significantly at least until FY22. As of now, management believes they are able to sustain their NIMs target of 2.20%-2.40%. (1HFY21: 2.44%). In part, alongside the abovementioned challenging economic climate, the group’s optimism towards being able to achieve its previous financing growth target of 8-9% is now closer to 7%. This will likely be further aggravated should the economy remain suppressed for a prolonged period.

With regards to credit cost, management had earmarked a guidance of 30-35 bps for the year (annualised YTD: 16 bps). However, management expressed it might not be burdened by the need for heavier provisioning as it anticipates more write- backs given the health of its assets. That said, for now this guidance leaves little room for potentially worse scenarios to materialise. As of 1HFY21, the group’s GIL stands at 0.72%, which is much lower than the industry-wide GIL of 1.62%

Meanwhile, there are some minor administrative hiccups with the restructuring exercise, slightly delaying its completion to early-Oct 2021 from end-Sept 2021. Recall that the group has already obtained all necessary approvals from shareholders and regulators for the exercise, only pending legal procedures with the local courts.

Post meeting, we leave our earnings assumptions unchanged for now, as we believe are assumptions are still mostly in line or more conservative than management’s guidance (our ascribed financing growth is 4% for FY21, below management expectations).

Maintain OUTPERFORM and SoP-driven TP of RM5.10, based on: (i) our ascribed Bank Islam’s valuation of 0.9x FY22E PBV, and (ii) 0.25x per TAKAFUL share. While investors might be looking ahead into the group’s restructured form with a positioning into TAKAFUL, presently BIMB itself commands commendable ROEs of c.11%. Additionally, as the only listed Shariah-compliant bank, the stock could command a scarcity premium in certain investors’ eyes.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower- than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, (vi) delay in restructuring exercise, and (vii) changes in OPR.

Source: Kenanga Research - 2 Sep 2021