• Maintain NEUTRAL, new MYR2.10 TP from MYR2, c.5% FY24F yield. Bank Islam’s 2Q23 analysts briefing saw management retain all its initial guidance, including a 7-8% YoY growth target for gross financing – which strikes us as slightly optimistic, considering the flat YTD growth. In the face of persistent macroeconomic headwinds, we advise investors to wait until a broad-based improvement in asset quality metrics is observed, before turning a corner on the stock.

• Still optimistic on financing growth. BIMB retained its gross financing growth target of 7-8% for FY23, despite having stayed flat YTD – this was largely due to a shrinkage of its non-retail portfolio, whereas growth in household financing was decent at 2%. A healthy pipeline of drawdowns for 2H23 indicates that the target is achievable. Moving forward, the bank aims to expand its non-packaged retail portfolio (ie no automatic salary deductions), with a focus on high credit score professionals, to mitigate the higher asset quality risk.

• Liquidity – comfortable with a tighter position. At end-2Q23, BIMB’s financing-to-funds ratio (FTFR) stood at 92%, up from 85% in the preceding quarter. This was largely due to a 7% QoQ decrease in total deposits and investment accounts, as management had allowed some high-cost non retail deposits to be rolled off in an effort to lower its cost of funds. The bank guided for the FTFR to hover around the level recorded in 2Q23 until the year-end, as it is eyeing further net profit margin expansion to 2.2% in 4Q (2Q23: 2.11%). In the meantime, the group will continue to chase after CASA deposits and transactional investment accounts (CASATIA), with a year-end CASATIA ratio target of 40% (2Q23: 39.1%).

• Household GIFs well contained. While BIMB’s household GIFs have seen a 65% surge YoY, the bank is not overly concerned, as the end-Jun 2023 household GIF ratio of 0.93% is well below the industry average of 1.32%. Besides, its house financing facilities are secured against the property value, whereas c.75% of personal financing facilities are packaged.

• Other asset quality updates. So far in 3Q23, the bank has not observed immediate stress in any of its books that could affect the GIF ratio materially. The end-year GIF ratio target of 1.5% remains (2Q23: 1.0%), which takes into account upticks in GIF post-expiry of the various repayment assistance programmes. The bank has a financing loss coverage of 122% and management overlays of MYR109m (c.13% of total provisions) to cushion any negative P&L impact from the expected GIF rise. Credit cost guidance of 30-40bps was maintained (1H23: 37bps).

• FY23F-25F forecasts lowered by 3% as we factor in a higher effective tax rate. After rolling forward our valuation year to FY24F, our TP is raised to MYR2.10, and includes a zero ESG premium/discount.

Source: RHB Securities Research - 1 Sept 2023