BIMB’s 1HFY24 net profit was within expectations despite modest financing growth, with a greater pipeline of disbursements from retail and corporate accounts planned for 2HFY24. While the group reported positive movements in NIMs and GIF, we reckon risk-reward profile for the group is less favourable at current price points, following a rise in the stock price in August after the recently announced civil servant wage hike, on anticipated benefits to BIMB of up to +4% in financing assets. Maintain forecasts and TP of RM2.25 but downgrade the stock to UP (from MP). Nevertheless, BIMB is also supported by a decent yield of more than 6%.

Within expectations. BIMB’s 1HFY24 net profit of RM266.3m came in as expected, making up 47% of our full-year forecast and 45% of consensus full- year estimates. No dividend was declared this quarter.

YoY, 1HFY24 net Islamic revenue inched up by 2% in tandem with BIMB’s 3% growth in financing, against NIMs coming off slightly (-3 bps) as funding remains strained. The group still reported heavier operating expenses with CIR at 64.7% (+3.2 ppt), no thanks to higher personnel cost and IT investments, but this was offset by lower credit cost of 23 bps (-14 bps) as repayment concerns eased. This translated to net earnings to improve to RM266.3m (+5%).

QoQ, 2QFY24 net profits sequentially gained (+5%) due to the same abovementioned reasons, with allowance for impairments continuing to improve (-4 bps). Although we note that remaining ECL overlays of RM55.8m are being gradually consumed (1QFY24: RM62.3m) with recoveries also being reported, absolute impairments have also reduced by 3%. This suggests that its healthy GIF of 0.92% may sustain in the coming periods as well.

Highlights. The group indicated that its below-industry loans growth of 3% will likely be made up by pent up disbursements for more working capital and investments to corporate clientele. The group also anticipates the slower demand in retail, particularly home financing, to pick up in the 2H period.

Regarding the recently announced civil servant wage increase by 7%-15%, we gather that c.80% of BIMB’s personal loan products are packaged with a salary deduction scheme (comprising civil servants and GLC staff). This translates to 25% of BIMB’s total financing books and reflects a potential spillover growth of up to 4% assuming these borrowers maximize their additional debt-paying headroom.

On the flipside, the group is shown to have a better handle on its funding mix and could continue to widen its NIMs; the maintained target of >2.10% offers room to downplay from 2QFY24’s 2.2%. BIMB’s GIF also continued to show good marks, operating well below the industry’s 1.6% in Jun 2024, thanks to continually prudent asset quality handling.

Forecasts. Maintained.

Downgrade to UNDERPERFORM (from MARKET PERFORM) with an unchanged TP of RM2.25. Our TP is based on an unchanged GGM-derived FY25F PBV of 0.64x (COE: 10.5%, TG: 3.5%, ROE: 8%) on a FY25F BVPS of RM3.46. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We have our reservations in the area of financing growth which we think may remain soft throughout FY24 and miss the group’s target of 7%-8%. We also noted that its share price had appreciated concurrently with the announcement of the abovementioned wage hikes. While it is likely for BIMB to gain from this development (effective Dec 2024), the price run-up could have been excessive against a minor <4% increment opportunity to its financing books.

Risks to our call include: (i) higher-than-expected margin expansion, (ii) higher-than-expected loans growth, (iii) better-than-expected asset quality, (iv) surge in capital market activities, (v) favourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 27 Aug 2024