PETALING JAYA: AmInvestment Bank Research (AmBank Research) has lowered its profit estimate for Bank Islam Malaysia Bhd after factoring in another overnight policy rate (OPR) cut of 25 basis points (bps) by Bank Negara Malaysia (BNM) in the second half of 2019.
For financial years ending Dec 31, 2019 and 2020 (FY19 and FY20), the research house has trimmed its earnings estimate for the group by 2.5% and 2.3% to RM709 million and RM792 million respectively.
It maintained its “buy” call on BIMB Holdings Bhd, which owns Bank Islam, but lowered its fair value to RM4.80 per share from RM5.20 per share previously.
“Although the fair value has been reduced, we still see an upside in the share price of BIMB as Bank Islam is still undervalued at 1.1 times price-to-book (PB) ratio considering a return on equity (ROE) of 11.6% for FY20,” AmBank Research said in a report.
For the next two financial years, the group has allocated RM300 million for operating expenditure (opex).
According to AmBank Research, BIMB’s management will be cautious on its opex spend which is expected to increase by less than 10%, contributing to a group cost-to-income (CI) ratio of 57.4% for FY19.
“Net interest margin impact from the recent OPR cut of 25bps will be 6-7bps per annum (full-year impact) on the group, and we have imputed this in our estimates. The bulk of deposits will be repriced within six months,” said the research house.
Meanwhile, it noted that circa 90% of Bank Islam’s customer deposits have a maturity of three to six months in tenure.
Currently, the group has no plans to raise any long-term funding in the second half of 2019 (2H19) that will increase its funding cost.
AmBank Research said that the net stable funding ratio for Bank Islam currently stands at 104% which is above its internal target of 103% and the minimum regulatory requirement of 100%, while its credit cost guidance is below 0.30%, with a stable credit cost for the first half of 2019 of around 0.2%.
BIMB’s asset quality remained stable with a gross impaired financing ratio of below 1%.
The research house opined that the ratio could potentially be lower in 2H19 from the normalisation of certain reschedule and restructure financing to real estate and manufacturing sectors, which are well collateralised.
“Group loans are on track to meet the growth target of 6-7% for FY19,” it said.
AmBank Research also highlighted that profit contributions from Syarikat Takaful Malaysia Keluarga (STMK) are still strong with growth supported by its tie-ups with Bank Rakyat, Bank Islam, RHB Islamic and Affin Islamic as preferred partners.
It noted that Bank Rakyat’s personal financing contributed 89% of the bank’s total financing, which in turn supported the growth in Syarikat Takaful bancassurance business.
Meanwhile, Bank Rakyat plans to scale down its personal financing mix to 70% by 2025 and diversify by granting loans to other segments, which could see Bank Rakyat’s bancassurance contributions to Syarikat Takaful coming from other loan segments rather than mainly personal financing.
“2H19 bancassurance income of the group is likely to pick up momentum in line with growth of mortgage loans,” it said.
“However, the new entrant in takaful market in Malaysia, FWD Takaful with the strong shareholders, could pose some competition pressure on STMK moving forward,” it added.
