BIMB stock - nice story of a turnaround

BIMB's net income margin may have expanded close to 20 basis points to about 3.58 per cent from first quarter of this year, thanks to a 'very liquid' balance sheet


KUALA LUMPUR: BIMB Holdings Bhd, owner of the country's oldest Islamic bank, bucked the banking trend to show enviable growth in net income margin (NIM) in the second quarter of the year.

The bank's NIM may have expanded close to 20 basis points to about 3.58 per cent from first quarter of this year, thanks to a "very liquid" balance sheet that gave it more flexibility than other banks, Desmond Ch'ng, an analyst at Maybank Investment Bank Research (MIB) told Business Times.

This helped the group post a first-half net profit that came in above analysts' expectations at RM114 million. The result accounted for 60 per cent of MIB's full-year forecast.

"What does enviable is BIMB's low financing/deposit ratio of just 54 per cent (which improved from 51 per cent in the first quarter), which gives it greater flexibility in managing its NIMs," Ch'ng said in a post-results note recently.

He raised his 2011 earnings forecast for the group by 8 per cent on the back of the higher NIM.

He maintained a "buy" call on the stock and kept his RM2.40 target. The stock last traded at RM2.02 on Monday.

Ch'ng said the stock made "a nice turnaround story" and suggested that investors start giving more thought to investing in the Islamic banking space, given that this was an important area of focus for Malaysia.

"What BIMB continues to offer is a turnaround story of what is now a well-capitalised commercial bank (15.6 per cent core capital ratio) with a very liquid balance sheet (net financing/deposit ratio of just 54 per cent), a well-managed and profitable composite insurance outfit as well as a potential M&A (merger and acquisition) story, given the possibility of shareholding changes," he said.

The group's plan - to expand into the region - " is probably not a priority at this point in time," he said.

The banking unit, Bank Islam Malaysia Bhd, has often talked about wanting to expand into markets, like Indonesia and Bangladesh to tap Islamic finance.

BIMB saw financing growth of 8 per cent for the year to date, or 16 per cent on an annualised basis, led by growth in personal financing.

While the management's target growth for the year remains at 20 per cent, MIB is taking a more prudent estimate of 15.6 per cent compared with 16.9 per cent earlier. The group's asset quality has remained stable.

Of interest, its insurance arm Syarikat Takaful saw strong earnings, with first half pre-tax profit more than doubled from a year ago, due to a 65 per cent jump in transfers from the family takaful fund.