9MFY22 earnings of RM365.9m (-20%) came within expectations. BIMB continues to report growth in its financing books but progressively shaves its interest margins as its long-term products gain favour. The group’s investments to uplift digital capacity may hinder near-term earnings with hopes for a long-term payoff. Maintain MP and GGM-derived PBV TP of RM2.45.

9MFY22 within expectations. 9MFY22 net profit of RM365.9m accounted for 75% of our full-year forecast and 76% of consensus full-year estimate. No dividend was declared, as the group typically pays a single final dividend.

YoY, 9MFY22 total Islamic income rose by 9% as financing growth sustained the decline in net interest margins (-16 bps) following an erosion in CASA mix (33.2%, -4.2ppts) and asset yields. Meanwhile, investment income declined by 17% owing to softer investment performance. As operating expenses saw a 12% rise on higher personnel costs, driving cost-income ratio to 60.7% (+4.7ppts). Impairment-wise, credit cost was higher (22 bps, +3 bps) from delinquencies of specific non-retail accounts as compared to the prior year. Overall, 9MFY22 net earnings reported at RM365.9m (-20%).

Holding steady. So far, BIMB is on track to keeping its FY22 targets on asset quality but may be shy of hitting the desired ROE of 10%. It has aspired to keep its gross impaired loans ratio below 1.5% and credit cost at below 30 bps, giving sufficient room should further mechanical adjustments to financing staging is required. We believe its profit target is hindered by prolonged weakness in trading markets. Meanwhile, the group may continue to see an adverse reaction from the interest rate upcycle owing to lower asset yields in its investment portfolios. Cost-wise, we reckon BIMB would only continue to be in an expansionary mode with further investments into digital capabilities and skilled personnel with hopes to boost efficiency and outreach as prescribed in its LEAP25 strategies.

Forecasts. Post results, we slightly tweak our FY22F/FY23F earnings from model updates. We await further updates from a pending results briefing later today.

Maintain MARKET PERFORM and TP of RM2.45. Our TP is based on an unchanged GGM-derived PBV of 0.85x (COE: 10.0%, TG: 3.0%, ROE: 9.0%) against our FY23F BVPS. While the stock offers an investment opportunity in a shariah-compliant financier, we believe the risk-reward at current price levels is well matched. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.

Risks to our call include: (i) higher/lower-than-expected margin, (ii) higher/lower-than-expected loans growth, (iii) better/worse-than-expected movement in asset quality, (iv) stronger/weaker capital market activities, (v) favourable/unfavourable currency fluctuations and (vi) changes in OPR.

Source: Kenanga Research - 1 Dec 2022