Kenanga Research & Investment

Bank Islam Malaysia - Finding Optimism In Uncertain Times

Publish date: Wed, 01 Mar 2023, 11:26 AM

We maintain our MARKET PERFORM call with a slightly lower TP of RM2.30 based on GGM-derived PBV (COE: 10.4%, TG: 3%, ROE: 8%) after earnings model recalibration post its results’ briefing. The group is optimistic in achieving stellar ROEs despite competitive pressures and asset quality concerns - though we believe moderate deliverables are plausible. Still, BIMB looks to become a top name for dividend seekers if its recent generous payments are any indication.

Key takeaways from the recent 4QCY22 results briefing are as follows:

- Ambitious 12% ROE for FY23. Although BIMB was behind its FY22 ROE target of 10% (achieving 7.5%), the group believes it should be able to make meaningful headways, with the help of its solid loans growth trajectory (FY22: +11.4%) which has showed encouraging activities in both retail and non-retail fronts. The group has earmarked a financing growth target of 8% for FY23, a slower quantum no thanks to anticipated slowing down of economic activity. The group is also set to accelerate its fee-based services which have compensated for softer mark-to-market and trading performance in FY22. On the flipside, competition for deposits is bound to drive pricing pressure, urging the group to book a conservative net interest margin target of >2.20%.

- Asset quality concerns may press. The group anticipates asset quality strains to increase on the back of inflationary pressures undermining affordability issues. We believe this is also premised on the group’s high consumer retail mix which could account for the lower income groups. The lapse of repayment assistance programs is not helping either. In terms of targets, a gross impaired financing of 1.5% is anticipated by the group, which marks an increase from FY22’s 1.27% while credit cost could also rise to 33bps from 22bps. That said, the group sits on management overlays of RM143m which could be open for progressive writebacks in the year.

- Dividend sparks may keep stock attractive. The group has for the first time since 2013 announced a second dividend payment for the financial year, meeting a payout ratio of 60% which is an all-time high. The group opines that it would work towards keeping payout lofty but with a mix of cash payments and utilising its dividend reinvestment scheme. However, this is still largely in consideration of capital adequacy as uncertainties are still present.

Forecasts. Post meeting, we trim our FY23F/FY24F earnings by 6%/3%. Although the group aspired for a ROE of 12%, we account for other key fundamental adjustments (i.e. financing growth, credit cost, and net interest margin) as they would be larger determinants of overall profits.

Maintain MARKET PERFORM and TP of RM2.30 (from RM2.35). Our TP is based on an unchanged GGM-derived PBV of 0.68x (COE: 10.4%, TG: 3.0%, ROE: 8.0%) on a slightly lower FY24F BVPS from our model adjustments. While the stock offers an investment opportunity in a shariah-compliant financier, we believe the risk-reward at current price levels is well matched. That said, a consistent c.6% dividend yield may be highly attractive to certain investors. 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 Mar 2023

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