We are positive on the bank’s medium-term sustainability. Meanwhile, its restructuring plan is expected to be completed by 3QFY20, barring administrative problems arising from the MCO. BUY with a TP of RM5.10 based on: (i) our ascribed Bank Islam valuation of 0.92x FY22E PBV, and (ii) 0.25x per our TP for TAKAFUL (OP; TP: RM5.85 based on 2.9x FY22E PBV). We like BIMB’s existing proposition as a standalone bank with solid performance in terms of asset quality and growth targets with commendable ROEs.

Management is confident in handling the new blanket six-month moratorium which was introduced with an opt-in clause, as opposed to the previous automatic moratorium requiring an “opt-out” application by customers. Management expects not more than 50% of applicable accounts to seek moratorium (at present, one third has applied) and this should translate to an equal exposure of half of FY20’s RM130m mod loss incurred. Most of the customer who sought for the moratorium is SMEs and micro SMEs.

BIMB achieved a financing growth of c.10% in FY20 as it enjoyed high demand in the household space. For FY21, management expects its 7-8% growth target achievable despite ongoing MCOs. Applications are presently held back due to backlog from physical applications which management expects to be cleared progressively. Household remains the key driver of financing growth with business loans still tepid. Previously, a credit cost guidance of 30-35 bps for FY21 was provided. Management has maintained its guidance with the view of heavily backloaded provisioning in 2HFY21, mainly owing to the abovementioned moratorium skewing asset quality mixes. However, given prevailing uncertainties at a much longer-than-expected rate, management is not discounting the need for further overlays in coming periods. GIL ratios are still expected to be close to 1%.

At the moment, the bank is still paying less than its desired 50% payout ratio (we applied at 35% payout) but could pay such levels when macro-risks ease. Riding on the restructuring, the stock allows investors to benefit from TAKAFUL. Collective dividend and potential from the 0.25x TAKAFUL’s share could amount to c.5%.

Source: Rakuten Research - 14 Jul 2021