In this briefing:
1. BIMB: Market Gives Thumbs-Up to Results
Malaysia has a tailwind of a new administration, vowing to overturn many aspects of its predecessor – including cancelling mega infra projects and reducing the “real” National debt.
The economy is relatively buoyant and is slated to generate an average of 4.75% GDP growth over 2018-2022. Private consumption will remain the main driver of growth, still the domestic economy continues to face downside risks stemming from any further escalation in trade tensions and commodity related shocks. Inflation has mellowed, supported by the cut in GST, but will still, once these effects diminish, be modest, at around 2%. Unemployment is low and there is a current account surplus.
Bimb Holdings (BIMB MK) or BHB commands two subsidiaries, Bank Islam and Takaful Malaysia. Bank Islam is a niche consumer-centred lender with a focus on mortgages: the largest component of the loan book and growing at a double-digit pace. Loans are therefore >5 years while funding tends to be <1 year. The insurance operation is BIMB’s most profitable revenue stream though. There is a concerted focus on the brand, on strategic bank partnerships, and on digitalisation. Both subsidiaries are rooted in Shariah-compliance. (Islamic Finance is a fast-growing market share in Malaysia). We do not rule out corporate reorganisation initiatives to unlock further value. The main shareholder is Lembaga Tabung Haji, a religious pilgrim fund board.
While BIMB is less sensitive to government actions on sovereign guarantees for infra projects, the bank is mainly exposed to consumer credit trends and cycle. Malaysia has a high level (by Asian standards) of household (excluding mortgages) indebtedness, dominated by credit cards, auto finance, and personal loans. Some areas of consumer banking reflect a stretched DSR, underpinning a moderately high risk by credit-to-GDP gap. The corporate sector is not excessively leveraged. BIMB though commands strong asset quality, provisioning, and capitalisation levels.
BIMB trades at a P/Book of 1.4x, an earnings yield of 10%, and a franchise valuation of 14%. Total Return Ratio stands at 1.2x, indicating that growth is underpriced. The combination of a lower than average franchise valuation by global standards, the aforementioned dividend-adjusted PEG factor, and a decile 1 global fundamental momentum PH Score™ are the pillars of our BUY thesis. The market reacted very favourably to FY18 numbers.
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