• Keep NEUTRAL and GGM-derived MYR2.60 TP, 5% upside with c.5% FY23F yield. We recently hosted a conference call with BIMB and emerged positive overall on its financing growth prospects. That said, rising gross impaired financing (GIF) and higher operating expenses could limit its share price upside. This counter is trading at c.0.7x FY23F P/BV against an ROE of 8%, and we deem its risk-reward ratio as balanced.

• Healthy financing growth... In 3Q22, BIMB recorded gross financing growth of 9.1% YoY – outpacing the industry’s +6.4% YoY over the same period. Most of the growth was driven by household financing (+11.7% YoY). Management sees upside risk to its 8% financing growth for FY22F, and provided a target of 7-8% for FY23. Growth should primarily be driven by households, whereas the bank will adopt a cautious stance towards the property and construction sectors, due to elevated raw material costs and labour supply issues. Management targets for total deposits and investment accounts to grow by 6-8% YoY in FY23F (9M22: +7%), which is broadly in line with financing growth.

• … but GIF is trending north. BIMB’s GIF in 3Q22 was up 32% since 4Q21, with particular stress coming from the household sector (+90% YTD). This compares against the banking system ’s total and household GIL growth of +13% and +12% in that period. BIMB’s GIF ratio has been on an uptrend as a consequence, with the 3Q22 figure at 1.20% (4Q21: 0.96%). While we note that the 3Q22 GIF ratio is still below the banking system’s 1.82%, we maintain our cautious stance with respect to the bank’s asset quali ty, given that GIF has yet to peak while BIMB still targets above-industry financing growth.

• Intensive investments to keep CIR elevated. For 9M22, BIMB recorded a CIR of 58.8% (9M21: 54.2%). Management urged us to expect CIR to remain at elevated levels as the bank ramps up on its IT and human capital expenditure as part of its future-proofing strategy. It also guided for the period of intensive investment to last for five years, during which the CIR is not expected to breach the 60% level – after the five years, it hopes to consistently keep CIR below 50%.

• Other highlights. Non-financing income should improve in tandem with the rebound in fixed income and equity markets. The bank expects two more interest rate hikes in 2023, with NIM sensitivity to every 25bps hike lowered to +6bps over 12 months (from +8bps) in view of the tough competition for deposits.

• We tweak our FY22-24 forecasts slightly (Figure 1) with operating and credit cost increases balanced by higher financing growth. We maintain our cautious stance for now, in view of BIMB’s rising GIF potentially causing further asset quality problems. Our MYR2.60 TP is based on a GGM- derived P/BV of 0.7x, and includes a 0% ESG premium/discount applied.

Source: RHB Research - 30 Jan 2023