We retain our NEUTRAL call with a revised TP of MYR4.30 (10% upside). 3Q15 results met our forecast but were marginally behind consensus estimate. Non-financing income and overheads dampened 3Q15 bottomline growth. Looking forward, we see income growth, tighter liquidity and asset quality as key challenges facing the banks but BIMB’s high LLC levels should provide a downside cushion.

3Q15 net profit of MYR120m (-4% YoY, -8% QoQ) was within our forecast but slightly below consensus estimate, with 9M15 net profit of MYR385m (+2% YoY) accounting for 75% of our and 72% of consensus full-year net profit forecasts. An interim DPS of 12.2 sen was declared.

Results highlights. The QoQ drop in net profit was due to a combination of lower non-financing income (-9% QoQ mainly due to a drop in takaful contribution) and higher overheads (+8% QoQ). Cost-to-income ratio remains elevated (62% vs 2Q15: 56%) arising from weaker operating income and as BIMB continues to expand its distribution network. Financing growth gathered momentum (+4% QoQ vs 2Q15: +3% QoQ) due to non-household lending, while net financing margin (NIM) was stable sequentially thanks to liability management (see below). There was also a net writeback in impairment on financing as recoveries improved during the quarter.

Loan and deposit growth. BIMB’s annualised financing growth was 12% (+18% YoY), driven by financing to small and medium enterprises (SMEs) and individuals. Meanwhile, total customer deposits declined 6% QoQ (+7% YoY), which we believe forms part of BIMB’s liability management strategy. Hence, we note that the financing-to-deposit ratio (LDR) jumped to 80% (2Q15: 72%; 3Q14: 72%) – a level management previously said was an optimal level for the group.

Asset quality. No major issues were noted on asset quality this quarter with absolute impaired financing stable QoQ and gross impaired financing ratio at 1.1%. Financing loss coverage (LLC) remained healthy at 172%.

Forecasts and investment case. No change to our 2015F numbers but we trim 2016-2017 net profit projections by 4% pa after we lowered our NIM assumptions by c.10bps. Given that BIMB has reached its targeted LDR, we see less scope for liability management to cushion NIM pressures ahead. Our GGM-derived TP is tweaked downwards to MYR4.30 from MYR4.55. Our GGM assumes: i) COE of 10.5%, ii) 16% ROE (previously 16.75%), and iii) 4.5% long-term growth. NEUTRAL.

Financial Exhibits

SWOT Analysis

Company Profile

BIMB Holdings provides all aspects of Islamic banking services. Through its subsidiaries, the company underwrites family and general takaful (Islamic insurance) and provides stock-broking and other related services. BIMB Holdings also has operations in unit trust management, provides training and consultancy services, and leases fixed assets to related companies.

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Source: RHB Research - 1 Dec 2015