Regardless of extremely attractive valuations, negative sentiment remains very strong for Bank Islam says MIDF, the house in fact has added a steep discount to its P/BV basis to factor in persistent negative sentiment, which it said should remain as long as the bank keeps underperforming.
Hence it opines that there’s a high chance that the significant downside possibility could lead to BIMB consistently disappointing on a variety of fronts in the near term. In short, the worst is unlikely to be over, and investors should consider reevaluating the stock upon better visibility on the May-23 OPR hike-induced impairments. With the expectation that its valuation may be under pressure in the near future and has further recommended investors to take profit. Subsequently downgrading the stock from Buy to Sell.
MIDF says it has grown incrementally negative on BIMB’s outlook, significant downside risk exists, heightening the possibility of BIMB disappointing on a variety of fronts in the near-term. Regardless of attractive valuations, we think negative repricing pressure should persist if BIMB keeps underperforming, and we urge investors to revisit the stock upon better visibility on May-23 related OPR hike impairments.
Household loan impairments to keep flooding in. PF loans make up a huge portion of household loans. Household impairments have steadily and sharply risen over five quarters, with lack of reason to dwindle. From an asset quality perspective, these risky loans are much more sensitive to OPR hikes, so expect the May-23 OPR hike to affect BIMB a lot more severely than its peers.
PF loans are unsecured and burn through provisions much quicker. As a result, we urge investors to be prudent with overlay
writeback expectations. We are also expecting heavy BAU provisions in the following quarters, considering heavy impairments to persist. Regardless, the house still opines that 30-40bps FY23F guidance is fairly conservative.
Regardless, management is doubling down on unpackaged PF loan accumulation. With that, BIMB will continue to be a high-risk bank in stressed-repayment periods. Wonders if this may affect asset quality valuation premium upon normalisation.
PF loan space is getting competitive. Affin Bank and Bank Muamalat have stepped up efforts considerably. MIDf expects sector-wide competition to further intensify as asset quality concerns start to subside and NIM optimisation becomes the central topic. It also said to expect the SBR shift to affect BIMB more severely than its peers, given its higher floating-rate retail loan exposure.
OPEX guidance leaves little room for error. This assumes 1QFY23’s OPEX is used as a run rate. Significant downside
risk exists in the form of tech spend. Judging by historical data, we believe that 2QFY22’s OPEX performance could
indicate whether FY23F guidance is achievable or not.
As for deposit mix, the house views it as being unfavourable, providing downside risk to NIM. BIMB’s duration is among the highest of its peers, despite having reduced it over several quarte
Going forward, the May-23 OPR hike should hit BIMB harder than most of its peers. Generally, banks whose retail
portfolios largely consist of vanilla mortgages and hire purchases shouldn’t be too affected. Multiple banks have signalled for
heavy writedowns in 2HCY23, implying that the hike is not expected to impact pre-existing asset quality too severely. BIMB,
on the other hand, has a far riskier loan portfolio due to its PF exposure. Asset-quality-wise, it is a lot more susceptible to
rate hikes than most peers. (Somewhat related: BIMB’s mix of floating rate loans is 92%, the highest amongst its peers.)
