• Stay NEUTRAL and MYR2.60 TP, 2% upside. BIMB recorded 9M22 net earnings that met our and consensus’ estimates thanks to a stronger 3Q22. Despite the decent bottomline performance, we maintain our cautious stance on the stock, particularly as some cracks appear to be forming on the asset quality front.

• 3Q22 results review. BIMB achieved 3Q22 PATAMI of MYR142.9m (+41% YoY, +22% QoQ), lifting 9M22 PATAMI to MYR366m (-20% YoY). On a quarterly basis, 3Q22 saw stronger net financing income by 30% YoY (QoQ: +8%) on the back of higher NIM of 2.49% vs 2.38% in 2Q22 (3Q21: 2.01%). Negative JAWs during the quarter saw CIR reduce by 2ppts QoQ to 58% – still lofty, in our view. However, credit costs saw greater improvement, with 3Q22 credit costs dropping 7bps QoQ to 16bps (3Q21: 24bps).

• 9M22 brought down by non-financing income (non-FI). While net financing income in 9M22 was up 13% YoY, non-FI was expectedly weaker by 43% – dragged by trading losses of MYR42m that offset higher core fee income. Elsewhere, opex rose 12% YoY on broad-based increases, leading to a higher CIR of 59% vs 54% in 9M21. With a slight 4bps uptick in credit costs on top of the Cukai Makmur impact, 9M22 PATAMI of MYR366m was 20% lower YoY – 9M22 annualised ROE was consequently a softer 7.4% (9M21: 9.5%).

• Financing growth at risk of missing guidance. BIMB’s gross financing of MYR62.1bn was up 9% YoY (QoQ: +2%) – this is ahead of management’s full-year guidance of 8%. However, YTD growth has been quite sluggish at +5% (+6.5% annualised). With financing appetite expected to taper off in 4Q22 given the rising interest rate environment, we view management’s target as optimistic, and see downside risk to that percentage.

• Signs of stress in asset quality? While 9M22 credit cost of 25bps was below the guidance of 30bps, gross impaired financing (GIF) increased 8% QoQ (YoY: +94%) driven by a 17% surge in household GIF (YoY: +57%). GIF ratio of 1.20% was up 6bps from 2Q22, and marked the fourth consecutive quarter of GIF ratio increase from 0.68% in 3Q21. Despite this, management appears reluctant to add provisions – evidenced by declining credit costs – and as a result, financing loss coverage (FLC) shed 11ppts QoQ to 137% (3Q21: 255%). We remain cognisant of BIMB’s asset quality due to its high exposure to the household sector and dissipating FLC.

• We leave our forecasts unchanged pending the analysts’ briefing later today. Our TP is maintained at MYR2.60, and is based on a GGM-derived fair value P/BV of 0.8x, and includes a parity ESG premium. With asset quality pressures seemingly mounting and tougher macroeconomic conditions expected, we believe the risk-reward profile for the stock is balanced for now.

Source: RHB Research - 1 Dec 2022