BIMB’s 1HFY23 net profit (+14% YoY) was within expectations. Pending further updates from today’s briefing, we opine that BIMB may exceed its financing growth targets with NIMs trajectory appearing optimistic. That said, its credit charges may require further scrutiny. We downgrade to MP (from OP) with an unchanged GGM-derived PBV TP of RM2.00 as we believe investors may seek higher ROE prospects.

1HFY23 within expectations. BIMB’s 1HFY23 net profit of RM254.2m accounted for 49% of our full-year forecast and 50% of consensus full year estimate. No dividend was declared as BIMB typically announces a single payment in the year, safe for FY22.

YoY, 1HFY23 total Islamic income grew by 6% as BIMB sat on a larger gross financing base (+9%) while NIMs appear to be growing (2.78%, +12bps). Meanwhile, investment income surged by 54% on the back of better securities disposal gains during the period. Despite the higher top line, cost-income ratio was relatively stable at 61.5% (+0.3ppt) as personnel expenses increased in tandem. We also saw credit cost rising to 37bps (+11 bps) as certain accounts may be strained by the mounting interest rate pressures. All in, 1HFY23 net earnings were still able to improve by 14% to RM254.2m thanks to the higher top line.

Outlook. On hindsight, BIMB appears to be gathering strong traction with its financing growth, which we observed to be mainly derived from home and personal financing. The group had previously set a target of 7%-8% for FY23. Meanwhile, its NIMs may be undergoing an inflection point, perhaps thanks to a more favourable product mix which we would seek further clarification from the group. On the flipside, rising credit costs may raise a cause for concern should the group’s portfolio be predominantly made up for newly delinquent accounts, as observed with its peers recently.

Forecast. Post results, we leave our FY23F/FY24F earnings unchanged pending updates from a briefing later today.

Downgrade to MARKET PERFORM (from OUTPERFORM) on an unchanged TP of RM2.00. Our call is based on an unchanged GGM derived FY24F PBV of 0.60x (COE: 11.0%, TG: 3.5%, ROE: 8%) on a FY24F BVPS of RM3.35. While the stock may see interest from shariah-seeking investors paired by commendable dividend yields of c.7%, we believe it may be fairly valued at current price points given its moderate earnings growth prospects in addition to its lower ROEs as compared to its peer average (c.9%). 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 interest margin, (ii) higher/lower-than-expected financing growth, (iii) worse than-expected deterioration in asset quality, (iv) slowdown in capital market activities, (v) currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 30 Aug 2023