• Stay NEUTRAL with a MYR2.80 TP, 7% upside with c.4% yield. BIMB’s 1H22 net profit missed expectations, at 44% of our and consensus full-year estimates. We maintain our cautious outlook, after the banking group recorded 1H22 ROE and YTD financing growth that fell short of management’s targets. This report marks the transfer of coverage to Nabil Thoo.

• 1H22 results review. BIMB recorded 1H22 net profit of MYR223m (-37% YoY) – this made up 44% of our and Street FY22F estimates, and translated to an annualised 1H22 ROE of 6.9%, below management’s target of 10% for FY22. In particular, weakness was seen – unsurprisingly – in non- financing income, which halved YoY on trading losses, whereas impairment allowances also ticked up by 65% YoY. This brought 1H22 credit costs to 29bps (1H21: 18bps), which is within the latest guidance of <35bps.

• 2Q22 saw a QoQ improvement in the bottomline, as its net profit of MYR117m for the quarter rose by 11% QoQ (-40% YoY). The improvement was due to stronger net financing income (+6% QoQ and YoY), on the back of a 10bps QoQ NIM expansion, offsetting the sequentially weaker non- financing income (-6% QoQ, -63% YoY).

• Financing growth falls short of target. Gross financing increased 8% YoY, with strong momentum in the household (+10% YoY) and wholesale & retail trade (+12% YoY) segments. However, we are beginning to see a slowdown in BIMB’s financing growth, as it has only increased 2.5% YTD. At an annualised rate of +5.0% YoY, this falls short of management’s 8% growth target for FY22. With macroeconomic headwinds expected to persist in 2H22, we see downside risks to the guidance given.

• Keeping a close eye on asset quality. Gross impaired financing (GIFs) surged 70% YoY, as households and the construction sector saw increases of 22% and over 700%. While the GIF ratio of 1.14% is still below management’s 1.2% target, we understand that BIMB’s loan portfolio is highly exposed to the household sector (77% of all loans are from households), which is likely to be the most impacted by the expiry of relief programmes and the persistent threat of inflation. We are also cognisant of the need to top-up on provisions, as financing loss coverage (FLC) has been on a downtrend since 3Q21 and, at 148%, is currently at the lowest level seen since 3Q19.

• We make no changes to our earnings forecasts and TP pending the analysts’ briefing on 1 Sep, but see downside risks to our forecasts – in view of its weaker-than-expected YTD performance. Our TP of MYR2.80 has a 0% discount or premium built in, since BIMB’s ESG score of 3 is on par with the country median.

Source: RHB Research - 1 Sep 2022