BIMB Holdings - Encouraging Tone

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+1.81 (60.54%)

Management sounded quite optimistic during our recent chat. Generally, BIMB shared that: (i) FY20 NCC is within its earlier 40-50bp guidance, (ii) NIM recovery is underway, (iii) financing growth is tapering but still above industry average, (iv) FVOCI reserve will not be aggressively monetized, and (v) completion time line for its corporate exercise is Jul-Aug 2021. Overall, we make no changes to our forecasts. We like BIMB for its positive long-term structural growth drivers and better asset quality among smaller-sized banks. Retain BUY and GGM-TP of RM4.80, based on 1.25x FY21 P/B.

We spoke to management recently for some operational updates. In general, the tone was quite optimistic.

NCC run-rates within expectations. We gathered 8-9% of its total financing balance is under repayment assistance vs the original expectation of c.10%; this is better than the 15-20% guidance we hear from other banks and also, the sector average of c.10% seen back in Nov-20. Besides, FY20 net credit cost (NCC) is anticipated to be within its earlier guidance of 40-50bp, with 4Q20 coming in lower at 20-25bp (9M20: 54bp). As for FY21, BIMB sees NCC tapering to 30-40bp. Overall, our estimates of 51bp and 39bp for both years are largely in line with management’s expectations.

Healthy top-line. Net interest margin (NIM) is likely to widen in 4Q20 and finish FY20 at c.2.4% (previous guidance: 2.30-2.35%), marking a smaller 15bp slippage vs FY19. Heading into FY21, NIM is guided to improve 10bp without an OPR cut and +7bp in the event if it does happen (vs our estimates of +3bp). For loans growth, it tapered to +9-10% in 4Q20 (as per guidance); this is seen to soften further to +7-8% in FY21 (in line with our +8% projection) but it is still quicker than the expected industry average 3.5-4.0% expansion. That said, similar to peers, BIMB does not intend to aggressively realize its RM243m fair value through other comprehensive income (FVOCI) reserve unless good opportunity arises.

Other key updates. Even with a relatively robust income outlook, BIMB still intends to remain strict with cost control; BIMB aims to reduce its cost-to-income ratio to 53-54% in FY20-21 (vs FY19: 58%; 9MFY20: 56%). With regards to its corporate restructuring exercise, the new targeted completion timeline is now Jul-Aug 2021. As for dividends, there will not be any in the upcoming Feb-21 results release as its typical payout is in Dec; they have already declared DPS of 12.6sen for FY20 (vs FY19: 16.0sen).

ESG initiatives. Management is committed to extend sustainable green financing and have already dished out RM2b loans relating to this effort as at Dec-20 vs RM1.76b in Dec-19 (this makes up c.4% of total financing).

Forecast. Unchanged since there were no material positive/negative updates.

Retain BUY and GGM-TP of RM4.80, based on 1.25x FY21 P/B with assumptions of 10.8% ROE, 9.2% COE, and 3.0% LTG. This is largely in line to its 5-year average of 1.26x but ahead of the sector’s 0.85x. The premium is warranted given its ROE output is 2ppt above industry mean. Despite implementation of MCO2.0, we are not turning bearish given the impending Covid-19 vaccination rollout. In any case, we believe the Government and BNM will remain supportive in helping troubled borrowers. Also, we reckon it is only a matter of time when the market looks forward again on economic activities returning to path of normalcy. Furthermore, we like BIMB for its positive long term structural growth drivers and better asset quality among smaller-sized banks.

Source: Hong Leong Investment Bank Research - 9 Feb 2021

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