Investment Highlights
Proxy to the fast-growing local Islamic banking segment. BIMB and MBSB are the only fully Islamic banks listed locally, serving as direct proxies to the lucrative Islamic banking sector. Islamic banking is growing much faster than Conventional counterparts and is forecasted to continue doing so. As a result, an Islamic scarcity premium is often attached to BIMB’s valuations – its PBV trades high for its BEST ROE level, despite a low free float.
Retail slant provides excellent asset quality. BIMB’s GIL ratio usually hovers about the ~0.90% level. Its June-24 GIL ratio was 0.92%, well below the industry average of 1.62%. This is the third-best among listed banks, following Public Bank and Hong Leong Bank.
This success is largely due to BIMB’s loanbook consists primarily of retail loans, which tend to be safer. A large chunk is retail mortgages, which are low-risk and better collateralised than business loans. The remaining retail loans are higher-yielding personal financing loans. Despite personal financing loans being unsecured, BIMB prevents arrears by subjecting borrowers to salary deductions for payment – where loan payments are automatically deducted from salary accounts. As a result, the personal financing portfolio usually boasts extremely healthy GIL ratios.
During the pandemic, BIMB'S asset quality issues were largely contained within its institutional banking portfolio. Given more normalised economic conditions, we don’t see a repeat of this happening anytime soon.
Brick-and-mortar outlet revamp provides better SME outreach and rejuvenates fee income profile. BIMB has been gradually closing its brick-and-mortar outlets for some time. However, this may come to an end, as management now plans to revamp the branches for different purposes instead of shutting them down.
Specialised services such as Ar-Rahnu (Islamic pawn broking) and wealth management will now be prioritised at branches. These services generates better margins, offering solid returns and a superior NOII profile. Traditionally, fee income contributions come largely from the consumer banking segment and are basic in nature, comprising takaful fees, card fees and MEPS commission. These basic services will now be outsourced to BIMB’s app and online infrastructure.
Another benefit: The revamping effort will likely prioritise better outreach efforts toward the SME community, in line with BIMB’s intention to build up its SME loanbook (given its superior NIM profile), especially when residential mortgage yields are narrowing. From a fee income perspective, BIMB is over-reliant on its consumer banking segment – and, as a result, missed out on valuable non-consumer fee income opportunities in the form of forex and trade fees.
Ultimately, we see the revamp as a huge positive – BIMB’s total fee contribution to the topline has always been lacking. Stronger fee income reduces reliance on non-fee income – which can be very volatile, as seen in the last couple of years. A stronger presence in the SME community fits the Group’s overall direction.
Transactional Investment Accounts (TIAs) keep the cost of funds low. BIMB’s COF is far more efficient than its peers, despite being a smaller bank with a less favourable customer deposit mix and minimal reliance on interbank borrowings or sukuk. The reason is simple: a large proportion of funding (16-20%) comes from IAs. In other banks, IAs usually comprise less than 1% of total interest-bearing liabilities.
Because of this, TIAs have a larger bearing on BIMB’s COF. TIAs are extremely cheap, and have a profile comparable to CASA (they can be withdrawn anytime). Their rates are only at 0.05-0.15%. Roughly 60% of BIMB’s IAs are TIAs. The remaining 40% of BIMB IAs have a tenure and cost profile akin to FDs.
Valuation & Recommendation
We initiate coverage on BIMB with a HOLD recommendation and a target price of RM2.76 based on an FY25F PBV of 0.79x GGM-PBV valuation. (GGM Assumptions: FY25F ROE of 7.8%, LTG of 4.5%, & COE of 8.7%.).
We favour BIMB for its (i) High loan growth potential and aggressive capturing of market share, (ii) Its ongoing loanbook rebalancing, which has already resulted in a safer asset quality profile, (iii) Potential for client-based NOII contribution growth, given its aggressive market share capture, (iv) Efficient cost of funds, despite being a smaller bank.
Disclaimer
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Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.390206 | 4.425718 |
| EUR | 5.008717 | 5.015095 |
| CNY | 0.603029 | 0.603828 |
| HKD | 0.565660 | 0.569770 |
| SGD | 3.345779 | 3.370205 |