Analysts more sanguine on BIMB’s earnings prospects

KUCHING: Following a recent management meeting with BIMB Holdings Bhd (BIMB), analysts felt much more sanguine on the group’s earnings prospects.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), financial year 2017 (FY17) loans are expected to be slower than targeted.

Kenanga Research recapped that BIMB, targeted for an eight per cent loans growth for FY17E but management guided for a lower estimation of approximately seven per cent, attributed to sluggish corporate loans.

“However, FY18 loans growth is expected to be at double-digit (or at approximately10 per cent on the conservative side) and as with FY17, loans will still focus on secured and less risky assets,” it said.

Kenanga Research highlighted that management painted a strong asset quality for FY18 with manageable risks in asset quality despite raising its PF contribution to 50 per cent.

The research arm further highlighted that as 2018 is an election year coupled with improving economic fundamentals, wages and employment are expected to stabilize, reducing the risk coming from this segment.

“Salary deduction model remains the core of its personal financing (PF) contributing 90 per cent with the remainder coming from program lending.

“With its historical credit scores healthy and impairments from PF among the industry lowest, BIMB has low credit risk concerns prompting a higher appetite for PF.”

With loan loss provisioning at 148 per cent, the research arm viewed the Malaysian Financial Reporting Standard (MFRS) 9 impact will be benign with credit costs manageable.

Meanwhile, with BIMB’s Net Stability Funding Ratio (NSFR) regulatory ratio at less than 100 per cent, Kenanga Research expected funding costs pressure ahead in 2018 to erode the group’s net financing margin (NFM).

However, the research arm noted that the recent overnight policy rate (OPR) hike is expected to alleviate NFM concerns with management expecting NFM improvement of four to five basis points (bps) in 2018.

On Kenanga Research’s forecasts for BIMB, FY17E and FY18E was raised by three per cent and seven per cent to RM600 million and RM693 million, respectively, on account of improved earnings contribution from Takaful for FY17.

The research arm pointed out that FY18 will be supported by higher loans of eight per cent to 10 per cent, better NFMs at five bps expansion versus two bps compression and higher earnings of 16 per cent year on year from Takaful. This is on account of decent gross earnings contribution of 10 per cent and stable claims incurred ratio of 52 per cent.

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