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As expected, BIMB’s 1Q19 net profit jumped 18% YoY, thanks to quicker total income growth as both its Islamic Banking and Takaful divisions have yet again eked out another inspiring quarterly performance. For the rest of 2019, we think any NFM slippage can be proactively managed and its asset quality is expected to remain steady. Also, financing growth is still predicted to stay above industry average and the robust Takaful business is expected to chug along. Forecasts are unchanged. Retain BUY with GGM-TP of RM5.20, based on 1.60x 2019 P/B.

Within expectations. BIMB reported 1Q19 net profit of RM203m (+26% QoQ, +18% YoY). This met estimates since it accounted for 26-27% of our and consensus full year forecasts. Recall, 1Q18 formed 25% of FY18’s earnings.

Dividend. None declared as BIMB only divvy in 3Q.

QoQ. Net profit rose 26% given positive Jaws as the expansion in total income (+8%) was faster than opex growth (+1%). Also, lower finance cost (-25%) at the group level, lifted overall showing. However, higher financing loss allowances (+19%) prevented a sharper increase in bottom-line. Besides, net financing margin (NFM) contracted 2bp to 2.59%.

YoY. The quicker total revenue growth of 18% led to an earnings acceleration of 18%. We note that net financing income increased 14% while income contribution from its Takaful operations was also robust (+32%). Besides, the slower provision for bad financing (+10%), helped to lift profitability, by offsetting the rapid 20% rise in opex.

Other key trends. Financing growth was still healthy at 8.5% YoY (4Q18: +8.9%) but was not aided by a ramp-up in deposits, which grew only 3.9% YoY (4Q18: +9.3%). Sequentially, financing-to-deposit ratio (FDR) was preserved below 90% (+3ppt QoQ), making it one of the lowest under our coverage. Also, asset quality remained steady as gross impaired financing ratio stayed below the 1%-mark (+3bp QoQ), among the best in the sector.

Outlook. Both the Islamic Banking and Takaful divisions are anticipated to chug along and continue to perform well. For Islamic Banking, we think any NFM slippage (2019: -1bp) can be proactively managed since it has leeway to optimize its low FDR of 88%. Besides, an above average 2019 financing growth run-rate of 6-7% is expected to be attainable as the personal lending space has demand resiliency; also, this generates higher interest yield. As for its Takaful business, the banca tie-up with Bank Rakyat (which began in 3Q18) should still provide a leg-up to growth via more credit-related product sales. As a result, total income growth (2019: +8%) is likely to outpace opex (2019: +4%), translating to positive Jaws. Lastly, asset quality is seen to be sturdy.

Forecast. Unchanged as 1Q19 results were within estimates.

Maintain BUY and GGM-TP of RM5.20, based on 1.60x 2019 P/B with assumptions of 14.5% ROE, 10.6% COE, and 4.0% LTG. This is relatively in line to its 5-year mean of 1.52x but above the sector’s 1.14x. The premium is warranted given its 4ppt above average ROE generation. Besides, from our reverse SOP assessment, we calculated the market is now only valuing Bank Islam (100%-owned) at 0.96x P/B with 10-11% ROE vs. peers at 1.14x P/B with 10% ROE, implying there is still upside from current levels. The risk-reward profile remains favourable, in our opinion, considering its rosy prospects backed by positive structural drivers.

Source: Hong Leong Investment Bank Research - 30 May 2019


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