• Maintain NEUTRAL with a new MYR2.60 TP from MYR2.80, 0% upside and c.4% yield. During BIMB’s 1H22 results briefing with analysts, management reiterated its guidance on financing growth and ROE, which we deem to be optimistic given the weaker-than-expected YTD performance on both fronts. At 0.8x FY23F P/BV, we believe current valuations are fair, with lower FY22 ROE expectations already in the price.

• Non-financing income to rebound. Recall that BIMB recorded 1H22 net profit of MYR223m (-37% YoY) on weaker non-financing income (-53% YoY) and a higher effective tax rate from Cukai Makmur. The group expects a rebound in non-financing income beginning 3Q22, in tandem with the improved bond and equity market environments. On top of this, management is encouraged by the growth in net financing income (+4.7% YoY) seen in 1H22 and stressed that the top-line should benefit from further policy rate hikes, as well as a pick-up in financing growth.

• Guidance. Although BIMB’s 1H22 net profit missed expectations, management remained upbeat on its guidance for FY22F. Financing growth target was kept at 8% (YTD achieved: +2.5%), to be led by growth in the retail segment. Management is confident of achieving a net income margin of 2.3% by year-end (2Q22’s: 2.29%) in view of policy rate hikes. No revision of its 10% ROE guidance was made, and the group is looking at a rebound in non-financing income to make up for lost ground (1H22 ROE stood at 6.9%). A rather elevated CIR target of <58% was set, attributable to higher investments in IT infrastructure and human capital.

• Asset quality is not an immediate concern. Currently management is comfortable with the bank’s asset quality, given its industry-leading delinquency ratio of 0.97%. While financing loss coverage has been on a downtrend since 3Q21, BIMB is comfortable with the current level of 148%, and has a management overlay balance of MYR181m (as at end-Jun 22) for buffer. BIMB lowered its credit cost guidance to <30bps (from <35bps), which we view as rather optimistic.

• Earnings and TP. Post the release of BIMB’s 1H22 results and briefing, we lower our FY22F-24F earnings by 2-6% to account for YTD performance. We remain cautious on the group’s outlook, particularly due to its high exposure to the inflation-prone household sector. We lift our FY22F-24F credit cost assumptions by 2-8bps in view of this. Our TP is revised to MYR2.60 (from MYR2.80) following the earnings change and updates made to our GGM model inputs. Our TP includes a parity ESG premium/discount, and is derived based on a FY23F P/BV of 0.8x.

• Downside risks: Lower-than-expected net financing margin, weaker-than- expected takaful income, and a higher-than-expected credit cost. The opposite represent upside risks.

Source: RHB Research - 2 Sep 2022