BIMB Holdings Bhd - 1HFY21 Within Expectations

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1HFY21 PATAMI of RM387.1m (+7% YoY) is within expectations. 2HFY21’s operating environment is expected to be challenged by asset quality concerns arising from recent lockdown measures, which could extend to weaker loans growth. That said, the group’s restructuring plan should be completed within the month which could unlockfurther shareholder value. Maintain OUTPERFORM and SoP-TP of RM5.10.

1HFY21 within expectations. BIMB’s 1HFY21 PATAMI of RM387.1m is broadly within expectations, making up 50%/49% of our/consensus expectations. We anticipate some pressures from further provisioning in the 2HFY21 period but at still manageable levels. No dividends were declared, as expected. The group typically announces dividends once per year.

YoY, 1HFY21 total income inched up by 3% to RM1.68b mainly due to the drag from NIMs at 2.70% (-26 bps) probably as its institutional deposits precedes its retail share. Meanwhile, operating expenses increased by 12% overall from higher personnel and overhead costs, CIR inflated to 60.8% (+5.3ppt). Meanwhile, less impairment allowances (-20%) came in thanks to prior pre emptive bookings. This translated to a credit cost of 16 bps (-6 bps). All in, PATAMI amounted to RM387.1m (+7%). Gross impaired financing was marginally higher at 0.72% (+2 bps) but coverage ratios are still more than adequate at 236% (from 205%). CASA-to-deposit continued to rise at 37.0% from 35.8% in 1HFY20.

QoQ, 2QFY21 total income was somewhat flattish (+2%), dented by softer performance from Takaful operations. In addition to a slow rise in operating costs and higher impairments (likely with overlays in place), 2QFY21 PATAMI came in at a 9% decline to RM184.6m.

Cautious 2HFY21 to be expected. The group is expected to execute its restructuring exercise by end-Sep 2021, awaiting completion of administrative processes as all necessary approvals have been obtained. Beyond this, the banking sector is expected to see some immediate challenges, picking up from the economic lull brought on by the lockdown implemented in June 2021. Most peers have expressed the need to pre-emptively prepare and be reactive as and when needed, and we believe BIMB will do the same. Previous, a credit cost guidance of 30-35 bps was given for FY21, which still leaves ample room at present. Meanwhile, competition is expected to heat up for loans and deposits as most banks have fully repriced their products and have to now acquire a larger share, possibly by forgoing some of the recent net interest gains.

Post results, we leave our assumptions unchanged for now, pending potential adjustments after their results’ briefing for analysts.

Maintain OUTPERFORM and SoP-driven TP of RM5.10, based on: (i) our ascribed Bank Islam’s valuation of 0.9x FY22E PBV, and (ii) 0.25x per TAKAFUL share. While investors might be looking ahead into the group’s restructured form with a positioning into TAKAFUL, presently BIMB itself commands commendable ROEs of c.11%. Additionally, as the only listed Shariah-compliant bank, the stock could command a scarcity premium in certain investors’ eyes.

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 - 1 Sept 2021

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