We maintain our MARKET PERFORM call and TP of RM2.25 based on GGM- derived PBV (COE: 10.5%, TG: 3.5%, ROE: 8.0%). Post results briefing, we gathered clarity on the group’s near-to-medium term targets fuelled by better landscape and capabilities. That said, we believe the stock may be fairly valued at the moment as we had accounted for more moderate growth though sustainable projections on its books, with capital downside cushioned by its solid dividend prospects. Our earnings forecasts are also unchanged.

Key takeaways from the recent briefing are as follows:

- Financing growth to step up. BIMB missed its revised FY23 financing growth target of 4%-5% (achieving 2.6%) owing to conscious decisions to not undertake less profitable non-retail accounts during 4QFY23, underpinned by high funding costs. The group believes its earlier 7%-8% target could materialise in FY24, as both retail and institutional banking are expected to be supportive. We believe mortgage financing will remain strong with a pivot towards more affordable house projects while businesses (namely SMEs) could benefit from a higher economic output expected for FY24. The group also adds that the roll-out of its new mobile banking platform during the year could bolster its retail presence.

- NIMs to sustain. Similar to most industry players, the group faced headwinds with NIM management in 4QFY23 due to intense competition for deposits, offsetting some of its leads in regaining NIMs during the year. The group presently views that the rate environment will likely remain stable, hence allowing the group to at least maintain its profit spreads going forward.

- Asset quality management unworrying. Thanks to its continued prudence, BIMB had successfully eased its gross impaired financing to 0.92% (4QFY22: 1.27%) and expects to retain levels below 1.1% in FY24. The group notes that certain upside is encapsulated as to not overly stress screening to the point that it may undermine financing growth. However, we believe there could be fewer concerns here with a balance ECL overlay of RM88m which could be utilised. Its credit cost guidance of <30 bps is an improvement of FY23 30-40 bps target and in line with the 26 bps delivered.

- Strong base in the medium-term. For its overall ROE, the group looks to achieve 8% in FY24 with a target of 9%-10% in the coming years. The group has made several investments on IT infrastructure and services which could aid in sustainably growing its top line with progressive optimisation of processes looking to keep expenses lean.

Forecasts. Post update, we leave our FY24F/FY25F earnings mostly unchanged.

Valuations. Our TP of RM2.25 is based on an unchanged GGM-derived PBV of 0.64x (COE: 10.5%, TG: 3.5%, ROE: 8%) on a FY25F BVPS of RM3.47. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. 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 peers’ average (c.10%). Maintain MARKET PERFORM.

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 - 4 Mar 2024