BIMB's 9MFY24 net profit missed expectations, falling short of financing growth trajectories and being at the wrong end of forex volatility, albeit cushioned by higher recoveries. With BIMB also cutting loan growth assumptions, this prompted us to cut our FY24F/FY25F earnings by 8%/3%. Maintain UNDERPERFORM call with a lower GGM-derived PBV TP of RM2.30 (from RM2.35). BIMB's 6% yield may still attract long-term investors.

9MFY24 missed expectations. BIMB's 9MYF24 net profit of RM396.8m made up 69% of our full-year forecast and 68% of consensus full-year estimate. The negative deviation from our earnings came from its slower-than-expected loans growth of 2.0% YoY (+1.2% YTD) from high redemptions by their corporate clients, in addition to softer investment income, no thanks to unfavourable forex volatility.

YoY, 9MFY24 net profit was flattish (+1%). We saw net Islamic revenue increase by 3%, led by its 2% financing growth and NIMs gaining 4 bps (to 2.15%) on lower funding costs. Investment income meanwhile declined (-1%) from lower forex gains.

CIR was elevated at 65.2% (+3.7 ppts) from heavier IT investments made during the year, offsetting the lower credit cost reported of 23 bps (-10 bps) led by higher recoveries in 9MFY24.

QoQ, 3QFY24 net profit declined by 5% mainly due to losses from forex transactions during the quarter, no thanks to heightened volatility in USD rates. It was noted that NIMs took a plunge (-9 bps) on lower asset yields as several corporate clients undertook early redemption of their financing.

Highlights. The group previously opined that it could enjoy a lumpier 2HFY24 period with a financing growth target of 7%-8%. However, in light of its corporate clients becoming increasingly rate sensitive, BIMB saw a bag of early financing redemptions of which their clients would pursue to raise their own sukuks as a cheaper alternative to financing. This led the group to tone down their guidance to 3%-4% (FY23: 11.4%), opting for more sustainable financing acquisition strategies in the near term.

Though it faces challenges to its income streams in addition to the volatility in forex markets, the group sought to maintain its 8.0% ROE target for the year, with several partnerships in wealth management and its new mobile banking app targeted to make up the difference.

Forecasts. We cut our FY24F/FY25F earnings by 8%/3% as we tone down our financing growth assumptions and NOII performance.

Maintain UNDERPERFORM with a TP of RM2.35. Our TP is based on an unchanged GGM-derived FY25F PBV of 0.67x (COE: 10.2%, TG: 3.5%, ROE: 8%) against our revised FY25F BVPS of RM3.44. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). The group's headwinds in growing its financing and more volatile NIMs trajectory could instil caution on investors, negating its high dividend yields of 6%.

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 - 2 Dec 2024