Kenanga Research & Investment

Bank Islam Malaysia - Financing Prospects Moderate

kiasutrader
Publish date: Thu, 30 Nov 2023, 10:50 AM

We maintain our MARKET PERFORM call andTP of RM2.15 based on GGMderived PBV (COE: 10.5%, TG: 3.5%, ROE: 8.0%). Post-results briefing, we are optimistic that BIMB’s near-term performance could remain intact. That said, some hurdles on financing are leading to a recalibration of its year-end target. Hence, we lower our FY23F/FY24F earnings by 3% each.

Key takeaways from the recent briefing are as follows:

- 12.59 sen dividend declared. The group proposed an interim dividend based on 60% payout. We deem this to be within our expectations for now against our full-year estimates of 14.5 sen on prospects that there could be a second (albeit smaller) dividend to be declared later on, similar to FY22.

- Nudging down financing growth to 4%-5%. Previous targets for FY23 financing growth sat at 7%-8%. However, having only seen a 2% expansion on a YTD-basis, the group opines that a 4%-5% level may be more realistic. The group has seen a strong accumulation in its financing books in FY22 thanks to the return of the service industry, which was more muted in FY23. That said, some headway is made in its household space from undeterred demand for housing loans.

- Nimble management supported NIMs. BIMB saw continued rebound in its NIMs over the past two quarters where it bore the largest compression in 1QFY23. While it faced the same intense competition for deposits as experienced by its peers, the group keeps performance afloat by prioritising higher yielding customers to rationalise its book’s profitability. The group opines that its NIMs for FY23 may close above 2% and close to the quarter at 2.20% (4QFY22: 2.25%).

- Impairments mostly in check. The group’s 9MFY23 credit cost reported at 33 bps (+11 bps YoY) which was expected given more write-backs previously. The group’s overlay balance of RM73.2m looks to be gradually reducing as most of its troubled accounts (personal financing, home financing) likely call for its utilisation. Still, the group affirms that asset quality remains under good management, possibly seeing little concern added by newer accounts.

Forecast. Post update, we lower our FY23F/FY24F earnings by 3% each as we review our financing growth estimates to 5%/6% from 7%/7% following the group’s revised tone.

Maintain MARKET PERFORM and TP of RM2.15. Our call is based on an unchanged GGM-derived FY24F PBV of 0.64x (COE: 10.5%, TG: 3.5%, ROE: 8%) on a FY24F BVPS of RM3.34. 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 Nov 2023

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