Investment Highlights

• We maintain our BUY recommendation on Bank Islam (BI) with unchanged fair value of RM3.80/share based on FY22 ROE of 11.5%, pegging the stock to P/BV of 1.1x.

• The group reported a lower net profit of RM102mil (-47.7% QoQ) in 3Q21. The softer in earnings was contributed by lower net income and higher operating expenses.

• 9M21 core earnings grew by 19.7% YoY to RM482mil after stripping out mod loss net of tax of RM27mil. The improved earnings were contributed largely by lower provisions.

• Cumulative earnings were within expectations, accounting for 69.4% and 73.9% of our and consensus estimates.

• BI’s gross financing moderated further to 3.9% YoY in 3Q21 vs. 6.4% YoY in the preceding quarter. Nevertheless, it remained ahead of the industry’s loan expansion of 2.9% YoY.

• For consumer loans, house and personal financing remained key contributors. House financing grew 8.3% YoY while personal financing expanded by 3.7% YoY. Meanwhile, growth in vehicle financing and outstanding credit card receivables contracted YoY.

• CASA and transactional investment account (CASATIA) expanded by 14.3% YoY while term deposits grew 6.4% YoY. CASATIA mix remained stable at 39.0%.

• 3Q21 net income margin (NIM) slipped 35bps to 2.11%, contributed by mod loss from Pemulih. Excluding the mod loss, underlying NIM for 3Q21 would be higher at 2.36%, a smaller decline of 5bps QoQ.

• 9M21 underlying net income margin (NIM) stood at 2.35% (excluding mod loss: 2.42%). This compared to 2.20% for 9M20 (excluding mod loss: 2.38%). NIM was within management’s guidance of 2.20–2.40% for FY21.

• The group’s gross impaired loan balances declined by 5.1% QoQ or RM20.6mil to RM387mil in 3Q21. Stable asset quality with improvement in BI’s gross impaired financing (GIF) ratio to 0.68% in 3Q21 vs. 0.72% in 2Q21.

Source: AmInvest Research - 30 Nov 2021