BIMB Holdings - Beat Expectations

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+2.01 (67.22%)

BIMB’s 4Q20 core profit jumped 92% QoQ due to lower opex and net writeback of financing loss provision. Also, NFM came in flattish QoQ. However, financing growth tapered and GIF ratio saw an uptick. Overall, results beat estimates due to lower-than-expected cost of funds and bad financing allowances. Therefore, we raise FY21-22 net profit by 15-18%. We like BIMB for its positive long-term structural growth drivers and better asset quality among smaller-sized banks. Retain BUY and with a higher GGM-TP of RM5.00 (from RM4.80), based on 1.30x FY21 P/B.

Above estimates. Excluding net modification loss/gains (in 4Q/3Q20), BIMB chalked in 4Q20 core earnings of RM256m (+92% QoQ, +42% YoY), which brought FY20 sum to RM824m (+5% YoY). This beat estimates, forming 119-120% of our and consensus full year forecasts; key variance was from lower-than-expected cost of funds and bad financing provision.

Dividend. None declared as BIMB only divvy in 3Q.

QoQ. The net writeback of financing loss provision (RM4m vs 3Q20: -RM156m) lifted core profit by 92%. However, top-line fell 4% due to tapering loans growth and flattish net financing margin (NFM).

YoY. Core earnings jumped 42% mainly due positive Jaws from opex drop of 13% vs total income growth of 2%; this came on the back of lower personnel (-18%) and other overhead costs (-11%).

YTD. Positive Jaws from the 4% total income growth vs opex decline of 2%, led core bottom-line to rise 5%. This was despite the doubling in impaired financing provision.

Other key trends. Financing growth tapered to 10.7% YoY (3Q20: +12%) but deposit picked up pace to 10.6% YoY (3Q20: +5.1%). In turn, sequential financing-to-deposit ratio (FDR) was down 6ppt to 89%. As for asset quality, gross impaired financing ratio increased 7bp QoQ to 0.67% mainly due to the household sector.

Outlook. For Islamic Banking, we see NFM pressure returning (but will be short-lived) given budding 25bp OPR reduction in 1H21. Separately, financing growth is expected to taper further due to intensifying repayment activities. Although GIF ratio has inched up, we are not overly concerned as BIMB has made heavy pre-emptive provisioning in FY20 and we reckon credit risk has been adequately priced in by the market, looking at the high NCC assumption applied for FY21 by both us and consensus (above the normalized run-rate but below FY20’s level). Besides, we believe the Government and BNM will remain supportive in helping troubled borrowers, limiting a significant slump in GIF ratio. As for its Takaful business, it is well positioned to ride the Islamic finance wave and positive structural industry dynamics, in the longer-term.

Forecast. With the better-than-expected 4Q20 results, we raise FY21-22 profit by 15- 18% to reflect lower cost of funds and provision for bad financing.

Retain BUY and with higher GGM-TP of RM5.00 (from RM4.80), following our profit uplift and based on 1.30x FY21 P/B (from 1.25x) with assumptions of 12.8% ROE (from 10.8%), 10.6% COE, and 3.0% LTG. This is largely in line to its 5-year average of 1.26x but ahead of the sector’s 0.90x. The premium is warranted given its ROE output is 3ppt above industry mean. 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 - 1 Mar 2021

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