BIMB’s FY14 profit beat  expectations,  driven  by a strong 24% financing growth  (and  a  surprise  boost  in  4Q  business  financing),  despite  the expected NIM erosion to 2.6%. Maintain NEUTRAL with a SOP-based TP of MYR4.30 (8%  upside),  after  switching  to non-dilutive valuations and lowering  earnings forecasts by  3-4%. We are sanguine  on its defensive strategy to tighten financing criteria that could moderate its growth.

Above  expectations.  BIMB’s  FY14  core  profit  of  MYR531m  (at 109%/106%  of our/consensus  forecasts)  beat  our MYR490m  forecast,  if we  remove  the  MYR44m  warrants  income  factored  in  our  earlier  fullydiluted forecast. With its ROE at a high 19%, BIMB  achieved its headline KPI of pre-tax ROE of 26%, with above-industry financing growth of 24% (management’s target: >20%). A surprise boost in 4Q business financing from  the  construction  segment  pushed  FY14  business  financing  YoY growth to 29% (FY13: 15%). This offset a slight moderation in householdfinancing  growth  of  22%  (FY13:  24%),  which  was  still  dominated  by house (36% YoY) and personal financing  (PF) (15% YoY). Net financing margin (NIM) was  2.6%, down  from 2.7% due to  the expected  pressure on cost of funds despite higher financing-to-deposit ratio (LDR) at 74%. Current and savings account (CASA) ratio remained high at 38%,  aided by  seasonal  year-end  CASA  activities.  NPL  ratio  of  1.14%  (FY13: 1.18%)  and  provisioning  for  financing  (LLC)  at  170%  (FY13:  176%)demonstrated its sound asset quality. BIMB’s Tier-1 capital ratio declined to 12.2%  (FY13: 13%) as strong financing  growth  pushed risk-weighted assets/total assets to 57% vs 51% in CY13.

Forecast  changes.  We  expect  a  moderation  in  household  financing growth  as  BIMB:  i)  raised  its  PF  net take-home  pay  criteria  to  capture better-quality  customers,  ii)  lengthened  its  deposit  tenure  (to  save administration  costs),  iii)  targets  a  150  branch  network  (FY14:  around 140). While we like its defensive strategy for quality, we lowered our nondilutive  FY15/FY16  earnings forecasts by  4%/3%  after cutting  financing growth to 13%/15% (from 17%/15%). We now account for a sharper NIM compression due  to challenges in cost of funds,  slower growth in certain high-yielding household financing products and lower fee income.  

NEUTRAL,  SOP-based  TP  of  MYR4.30. We switched our valuations to a non-dilutive TP, which is below the warrant exercise price of MYR4.72. We  peg  BIMB’s  P/BV to 1.4x (from 1.8x, 13% ROE on bank level) and takaful   valuations  to  3.4x  P/BV  (27%  ROE  on  takaful  level).  Our  TP implies  group level  P/BV  at  2.2x  that reflects  its  quality,  high  expected after-tax  ROE  of  17%  and  scarcity  as  a  pioneer  Islamic  bank.  Our current forecasts assume a 26% pre-tax FY15F ROE, which is still above the minimum 23% pre-tax ROE as per BIMB’s headline KPI for FY15. 

Source: RHB