• BIMB’s FY16 PAZTAMI of RM559.0m (+2%yoy) was within ours and consensus expectations

• However, its 4QFY16 earnings dropped to RM139.5m

• We retain our FY17 forecast numbers at this juncture

• We maintain our NEUTRAL recommendation with an unchanged TP of RM4.35

FY16 earnings met expectations. BIMB’s FY16 PAZTAMI of RM559.0m (+2.0%yoy) came in line with our and consensus full year forecasts. The marginal growth in PAZTAMI was reflecting higher top line contributions although it was partially offset by higher finance cost from issuance of Sukuk of RM110.5m (+33%yoy) and higher zakat on assets of RM13.5m (47%yoy). Overall, net interest margin (NIM) of 2.74% stayed flat due to slight increase in cost of funds to 2.53% from 2.47% following tighter competition of deposits.

4QFY16 earnings dropped. The decrease in 4QFY16’s net profit was largely due to (1) lower income derived from investment of shareholders’ funds of RM71.2m (-44%yoy and -21%qoq), (2) lower Takaful business income of RM163.2m (-14%yoy and -5%qoq), (3) higher zakat of RM6.1m (>100%yoy and >100%qoq) and (4) increase in management expenses that indirectly resulted in higher expense reserve. However, the decline was partially offset by the increase in income from investment account of RM44.3m (>100%yoy and 39%qoq).

Net financing expanded in line with expectation. Net financing continued to expand, growing by 14.3%yoy to RM39.2b mainly driven by growth in house and fixed asset financing (HFA) to RM14.7b (+20.9%yoy) and personal financing to RM11.3b (+8.8%yoy).

Asset quality remained healthy. The Group’s asset quality improved as its gross impaired loans ratio stood at 0.98% compared to 1.09% as at end of FY15 following continued efforts on recoveries.

Impact on earnings. We retain our FY17 forecast numbers as the results fell within our estimates. Looking ahead, the Group is targeting overall loans growth of 8% with focus to secure more HFA (particularly from affordable housing) and PF assets (particularly from professionals, government servants and selective consumers with salary reduction). The Group also expect less severe impact from the implementation of MFRS 9 in 2018 as the Group has healthy financing loss coverage.

Recommendation. We maintain our NEUTRAL recommendation with an unchanged TP of RM4.35 based on FY17 price-to-book valuation FY17 of 1.65x. This valuation is pegged to 1 standard deviation below its 5-year historical mean PBV of 1.90x as it has been relatively overrun than Malaysia’s banking industry PBV average of 1.5x.

Source: MIDF Research - 28 Feb 2017