• Keep NEUTRAL, new MYR2.50 TP from MYR2.40, c.6% FY24F yield. After a year of focusing on managing funding cost and asset quality in FY23, BIMB is adopting a more bullish stance on financing growth in FY24F. While our concerns on the bank’s asset quality have dissipated, we keep to our rating, as current valuation appears fair. We also prefer banks with larger business banking exposure in FY24.

• A more optimistic tone. BIMB sees funding cost pressures easing in FY24 relative to levels seen in 4Q22/1Q23. The bank guided for stable-to-slightly higher net financing margin in FY24, with enablers being financing and CASA growth. Additionally, it is turning more optimistic on financing growth, with a target of 7-8% YoY (FY23: +3%). Growth will primarily be retail-driven despite some competition on mortgage rates – the bank says it has identified a specific segment within the mortgage market wherein margins can remain decent. For the non-retail segment, the group will push for supply chain financing among its SME and mid-corporate customers.

• Embarking on cost-saving initiatives. BIMB has developed several cost- saving initiatives for FY24, with a focus on automation and organisational restructuring to ensure improved efficiency. These initiatives could translate to cost savings of up to MYR20m, though net opex growth should still be positive due to cost inflation. BIMB aims to bring its CIR down to 55% by FY26F (FY23: 61%) in its effort to lift ROE to 9-10% levels (FY23 ROE: 8%).

• No immediate signs of asset quality stress. The group has not noted any warning signs in its lending portfolio, and does not rule out the possibility of overlay writebacks, though the Dec 2023 balance of MYR84.4m is rather small at c.10% of total provisions. Collection productivity – one of the reasons behind the 26% YoY drop in gross impaired financing (GIF) – will continue to be an area of focus for the bank. Asset quality-related targets for FY24 include GIF ratio of <1.1% (FY23: 0.9%) and credit costs of <30bps (FY23: 26bps), both of which we think are achievable.

• What to expect on dividends? Management is confident of keeping dividend payouts at c.60%, slightly down from FY23’s 69%, but would still yield a decent 6-7% on our earnings forecasts. However, given its optimistic growth ambitions, we reckon a greater level of capital preservation will be required, thus management might opt to utilise its dividend reinvestment plan (DRP) instead of dishing out all-cash dividends. As it stands, BIMB’s capital levels remain healthy (Dec 23 CET-1 ratio: 14.1%).

• Forecasts and TP. We lift our FY24-26 forecasts by 6-7% after updating our credit cost and opex assumptions for the latest guidance. Our TP rises to MYR2.50 (from MYR2.40), and includes zero ESG premium, as BIMB’s ESG score of 3.0 is in line with the country median.

Source: RHB Research - 4 Mar 2024