We raised our FY19E earnings by 7% to RM785m on account of better treasury activities. We believe its feebased income will show stellar results due to revaluation/disposal of investment securities. BY with TP of RM4.95 based on PBV of 1.2x on Bank Islam and market value of 0.25 shares of Syarikat Takaful Malaysia @TP of RM6.85/share. While the 1.2x PBV valuation is higher versus most mid-sized conventional banks, we feel this justified given; (i) scarcity value as the only listed Shariah-compliant Bank currently; (ii) the existing structure of BIMB which implies a 1.0x book value to Bank Islam where it could be higher after the holding company discount is removed post distribution.

We believe BIMB’s targets will be attainable as highlighted previously. Although financing showed an above target performance of ~9% YoY, we expect management to maintain its loan target growth of 7-8% on account of maintaining asset quality. Net Financing Margin is expected to compress at ~5bps on account of the OPR cut in May 2019 and competition of deposits on account of the Net Stability Funding Ratio compliant (NSFR) - duly complied by 3QCY19.

We expect asset quality to be resilient and stable with its Gross Impaired Financing Ratio (GIF) staying under 1% and credit charge for FY19 at ~20bps. We expect BIMB to maintain its financing target of 7-8% for FY20 given the volatile environment. BIMB will maintain its stance in the Household (HH) segment with a 60/40 split of HH and Personal Financing (PF) – 9MFY19 saw a 69% contribution from these two segments.

Given the accommodative interest rates, the reliance on HH is sustainable – since the May OPR cut, HH have enjoyed a resilient ~8% YoY growth in the previous two quarters. Furthermore, it is also unlikely to be impacted by the current health concerns as its exposure to the Wholesale & retail trade & hotels & restaurants industry is minimal – at ~2% of its total financing. In fact, BIMB has been cutting down its exposure to this sector, from a peak of ~4% to the current 2%.

Our FY19E earnings are revised by +7% to RM785m with income from investment of shareholders’ funds expected to improve by 7% YoY (from -6% YoY previously). The rest of our assumptions are unchanged; (i) NFM at -5/-2 bps, (ii) financing at +7%/+8%, (iii) CIR at 55%/53%, and (iv) credit costs at 20/19 bps.

Source: Rakuten Research - 13 Feb 2020