We hosted a meeting with BIMB’s Chief Financial Officer, En. Azizan Abd Aziz which left us feeling confident on the bank’s medium-term sustainability. The new moratorium is expected to only exert moderate mod loss exposure as compared with FY20 and management is also confident that key guidances are intact, large due to them already adopting a conservative stance. Meanwhile, its restructuring plan is still expected to be completed by 3QFY20, barring administrative problems arising from the MCO. Maintain OP and SoP-driven TP of RM5.10.
Less pressure from new arrangements. Management is confident in handling the new blanket six-month moratorium which was introduced with an opt-in clause, as opposed to the previous automatic moratorium requiring an “opt-out” application by customers. With present conditions, management expects not more than 50% of applicable accounts to seek moratorium (at present, one third has applied) and this should translate to an equal exposure of half of FY20’s RM130m mod loss incurred. Most of the customer who sought for the moratorium is SMEs and micro SMEs.
On the other hand, the group sustained its low TRA mix of less than 10% of gross loans given that most of its customers are within the government sectors. We believe that the group will continue to benefit from such low levels as income security concerns are less apparent here as opposed to professional customers and business owners.
Financing growth still robust. BIMB achieved a financing growth of c.10% in FY20 as it enjoyed high demand in the household space. For FY21, management expects its 7-8% growth target to be still achievable despite ongoing MCOs. However, this is due to of low levels of loan redemption keeping bases high. Also, applications are presently held back due to backlog from physical applications which management expects to be cleared progressively. Household remains the key driver of financing growth with business loans remaining tepid.
Credit costs lofty in 2HFY21. Previously, a credit cost guidance of 30-35 bps for FY21 was provided. Management has maintained its guidance with the view of heavily backloaded provisioning in 2HFY21, mainly owing to the abovementioned moratorium skewing asset quality mixes. However, given prevailing uncertainties at a much longer-than-expected rate, management is not discounting the need for further overlays in coming periods. GIL ratios are still expected to be close to 1%.
Restructuring is still marked for completion by end-3QFY21, as only administrative steps remain. Post restructuring, commercial agreements with Syarikat Takaful will continue as Bank Islam will continue to leverage on existing bancassurance agreements. At present, there are no plans for the bank to develop their own takaful products.
Post meeting, we leave our earnings assumptions unchanged for now.
Maintain OUTPERFORM and SoP-driven TP of RM5.10, based on: (i) our ascribed Bank Islam valuation of 0.92x FY22E PBV, and (ii) 0.25x per our TP for TAKAFUL (OP; TP: RM5.85 based on 2.9x FY22E PBV). We like BIMB’s existing proposition, where as a standalone bank, it helms solid performance in terms of asset quality and growth targets while registering commendable ROEs. At the moment, the bank is still paying less than its desired 50% payout ratio (we applied at 35% payout) but could pay such levels when macro-risks ease. Riding on the restructuring, the stock allows investors to benefit from TAKAFUL shares which would also be a beneficiary from the eventual economic recovery. Collective dividend and potential from the 0.25x TAKAFUL’s share could amount to c.5%.
Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, (vi) delay in restructuring exercise, and (vii) changes in OPR.
Source: Kenanga Research - 14 Jul 2021