BIMB's financing direction is skewed to the still resilient Household segment with loans target of —8%. Stock valuation is undemanding, trading at below its 5-year mean. BUY with a TP of RM4.90 based on a blended FY19E PB/PE ratio of 1.6x/11.9x. The stock is trading at its 5-year average PB/PE of 1.4x/10.2x which is undemanding and undervalued. Although its 1.4x P/B seems pricey (vs. the industry average of 1.2x P/B) its forward ROE of 13% (vis-a-vis HLBANK 1.6x P/B with a forward ROE of 1 1%) makes it a more attractive proposition. 

Post GE1 4, BIMB's loan target will still be maintained at 8%. Management reiterated that its loans portfolio is mostly for small-to-mid size ticket items. Exposure to construction stocks are mostly to the small to mid-cap stocks. As of 1018, exposure to the construction sector is at ~5%, significantly lower from its highs of ~9% in 3Q12. In the last 5 years, average contribution from the construction portfolio was at ~6%. This low exposure also helps to stabilize its asset quality. 

The bank's property portfolio is unlikely to be expanded in light of the government's recent stance to address the affordability and stringent financing issue faced by first-time house buyers. We understand that BIMB will focus on selective asset as it did in the last two years with the primary focus on defending its asset quality. Although the Group's asset quality has been impressive with gross impaired loans (GIL) at <1%, with credit charge at <30bps, we view the Group remains mindful of potential economic volatility (impacting credit charge assessments) and is thus unlikely to risks expanding household portfolio. 

Our FY18E earnings are maintained at RM606m premised on: (i) lower loans of ~8%, (ii) flattish NFM (net financing margin), and (iii) CIR (cost to income ratio) of 60% (from 56% previously). 

Source: Rakuten Research - 27 Jul 2018