This article first appeared in The Edge Financial Daily on November 30, 2018
BIMB Holdings Bhd
(Nov 29, RM3.73)
Upgrade to add with higher target price of RM4.43: Although BIMB Holding Bhd’s net profit for the nine months ended Sept 30, 2018 (9MFY18) accounted for 78% of our full-year forecast, we regard the results as in line as we anticipate a weaker fourth quarter for the 2018 financial year (4QFY18) premised on slower growth in takaful income and possible increase in loan loss provisioning. However, at 82% of Bloomberg consensus estimates, BIMB’s 9MFY18 net profit is above market expectations, in our view.
BIMB’s core net profit rose by 8.3% year-on-year (y-o-y) to an all-time high of RM198.6 million in 3QFY18. This was mainly underpinned by a 19.7% y-o-y surge in net financing income, partly arising from the 24 basis points (bps) y-o-y expansion in net interest margin, and 24.3% y-o-y rise in non-fund based income, lifted by a 32% y-o-y jump in takaful income.
BIMB’s net profit advanced by a healthy 10.7% y-o-y in 9MFY18, on the back of 11.6% y-o-y rise in total operating revenue. As this outpaced the 5.2% y-o-y increase in overheads, it led to a positive jaws ratio and a 19.9% y-o-y surge in pre-provisioning profit. However, this was partly offset by the upturn in credit cost with a provisioning of RM62 million in 9MFY18 versus a net write-back of RM10.2 million in 9MFY17.
Financing growth improved from 6.8% y-o-y at end-June 2018 to 10.5% y-o-y at end-Sept 2018, mainly driven by stronger momentum in most of the non-core business loan segments, including utility, construction and real estate loans. Household loans, which made up 76% of its total loans, eased from 10.6% y-o-y at end-June 2018 to 10.1% y-o-y at end-Sept 2018.
Our FY18 to FY20 earnings per share forecasts are intact. We raise our dividend discount model based target price from RM4.15 to RM4.43 as we rollover to end-2019.
We upgrade BIMB from “hold to add” premised on the strong expansion in takaful income and improvement in loan growth. The strong 3QFY18 earnings could also act as a rerating catalyst for the stock. Downside risks include slower loan growth. — CGSCIMB Research, Nov 28