BIMB: Profitability Pressured by Soaring Costs and Margin Compression
| Investment Bank | MBSB RESEARCH |
|---|---|
| TP (Target Price) | RM2.31 (-0.4%) |
| Last Traded | RM2.32 |
| Recommendation | NEUTRAL |
Bank Islam Malaysia Berhad (BIMB) reported financial results for the first half of fiscal year 2025 (6MFY25) that fell below both market and internal forecasts, primarily due to higher-than-expected operating expenditure (OPEX) growth. The bank’s core net profit (NP) for 6MFY25 stood at RM253 million, representing a 5% decline year-on-year and achieving only 43% and 42% of the full-year analyst and street forecasts, respectively.
Performance Review
For the second quarter of fiscal year 2025 (2QFY25), BIMB’s core net profit remained flat quarter-on-quarter at RM127 million. While the bank saw stronger non-interest income (NOII) during the period, this positive contribution was significantly offset by several factors: a noticeable net interest margin (NIM) compression, elevated operating expenditure, and increased provision expenses. These factors collectively led to earnings coming in weaker than anticipated.
The research report highlighted that NIM compression was particularly steep, further impacted by new personal financing guidelines from Bank Negara Malaysia (BNM) that are affecting yields. Furthermore, operating expenses have shown extremely high growth, potentially attributed to an ongoing branch revamp initiative within the bank.
Outlook and Challenges
Despite the prevailing challenges, BIMB maintains a solid loan growth outlook, following a period of weaker performance in previous years. Management also indicated expectations for recoveries and write-backs in subsequent quarters, which could mitigate the impact of currently high net credit costs (NCC). The asset quality situation, however, remains uncertain, especially within the retail portfolio, although management projects a decline in gross impaired loans (GILs).
Looking ahead, management has cautioned about potential capital issues stemming from high asset growth coupled with its dividend payout strategy. In light of the current performance and revised guidance on NCC and OPEX growth, MBSB Research has adjusted its core net profit forecasts for FY25F, FY26F, and FY27F downwards by 10%, 4%, and 3% respectively.
Key downside risks identified by the investment bank include a potential deceleration in loan growth, further steep NIM compression, and higher-than-expected net credit costs.
