We maintain our TP of RM2.25 based on GGM-derived PBV (COE: 10.5%, TG: 3.5%, ROE: 8.0%), and earnings forecasts. Post results briefing, BIMB maintained its FY24 targets in spite of a softer 1Q and believes it is poised to see a stronger trajectory subsequently. We derived our forecasts from more conservative estimates, which may reflect a more favourable risk-reward for the stock at current price points. Upgrade to MP from UP.

Key takeaways from the recent briefing are as follows:

- Sticking to 7%-8% financing growth. While BIMB’s 1QFY24 report saw gross financing only inched up 2% YoY (+0.2% QoQ), the group stays firm with its initial 7%-8% growth target for the year. The group cites seasonal weakness during the recent quarter to more crowded festivities. Retail books will likely stay afloat thanks to mortgage financing demand being sustained. That said, the group may see softness in building its corporate portfolio (23% of total financing) as it opts to be more selective in onboarding more profitable accounts.

- Balancing profit and risk. The group’s gross impaired financing target of below 1.1% indicates a notable allowance from its 1QFY24 reporting of 0.95%. To support earnings, the group seems keen to increase its exposure to higher-profit-but-higher-risk SME accounts. We opine that economic risks for this segment could likely taper with a better economic outlook expected in CY24. These smaller business accounts could also be more inclined to tap into BIMB’s wider product offerings and bolster fee-based income in addition to fund-based income.

- NIMs hopeful to be stable. Given that the landscape for both financing and deposits remain competitive, the group is eyeing to average NIMs in line with FY23’s performance. We opine the industry may continue to operate tightly with its rates until further adjustments to OPR.

- Cost load up to stay. In line with its intent to sustainably grow top line with progressive optimisation of processes looking to keep expenses lean, the group will continue to invest in its IT infrastructure and services. While it looks to spread an investment of RM100m across three years, this is keeping in mind for cost-income to be close to 60% for the year.

Forecasts. Unchanged. We highlight that our model inputs are conservative against the group’s guidance, where we anticipate financing growth to be closer to 6% with ROE of 7.6% being slightly shy of its 8.0% FY24 target.

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 RM3.46. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. The stock may see interest from shariah-compliant investors paired by commendable dividend yields of c.7%, with recent correction in share price leaning to more favourable risk-reward for the stock. This could make up for BIMB’s lower-than-peers ROE average (c.10%). Upgrade to MARKET PERFORM from UNDERPERFORM.

Risks to our call include: (i) lower-than-expected interest margin, (ii) 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 - 24 May 2024