Investment Highlights

• We upgrade our call on BIMB Holdings (BIMB) from HOLD to BUY with a revised fair value of RM4.40/share (previous: RM3.90/share). This is based on a higher derived SOP valuation after pegging the stock 1.2x to Bank’s Islam’s (BI) estimated shareholders’ funds for FY22.

• Our FY21 net profit has been raised by 6.9% to factor in higher net income margin and income from Syarikat Takaful Malaysia Keluarga (STMK). We expect higher earnings for BI ahead with improved net profit margin and lower provisions as well as stronger STMK’s earnings contribution from a pick-up in sales of credit-related products with the economy recovering.

• The group posted a core net profit of RM252mil (+91.7% QoQ) in 4Q20 after excluding modification loss net of tax of RM29.6mil in 4Q20. The better earnings were contributed by lower provisions after raising pre-emptive impairment provisions in the form of management overlay in 3Q20.

• 12M20 core earnings came in at RM824mil (+29.0% YoY) with higher earnings contribution from Syarikat Takaful, lower opex partially offset by higher allowances for loan losses. Cumulative earnings were above expectations, accounting for 115.8% of our and 114.4% of consensus forecast. The variance to our expectation was due to higher financing income and lower opex.

• The earnings of BI, BIMB’s 100% subsidiary, were impacted by a higher net allowances on loan impairment on financing for 12M20 of RM209mil vs. RM84mil in 12M19. This was due to higher net allowance charged for impairments on financing of RM97.4mil and lower bad debt recoveries of RM27.6mil.

• Reported net income margin of BI was compressed by 26bps YoY to 2.25% in FY20, contributed by consecutive OPR cuts. Excluding modification loss, the compression on income margin was lower by 10bps to 2.41%.

• BI’s gross financing moderated further to 10.7% YoY vs. 11.8%YoY in the preceding quarter (net financing growth: 10.5% YoY), still higher than the industry’s 3.4% YoY growth.

• For consumer loans, house and personal financing remained key contributors with a growth of 9.7% YoY and 15.1% YoY respectively. Meanwhile, growth in outstanding credit card receivables contracted by 9.2% YoY.

• Customer deposits and investment account grew by 10.1% YoY. CASA growth moderated and the CASA & transactional investment account (CASATIA) mix fell to 36.1% in 4Q20.

Source: AmInvest Research - 1 Mar 2021