Investment Highlights

• We maintain our BUY recommendation on Bank Islam (BI) with a lower fair value of RM3.70/share from RM3.80/share. We roll over our valuation to FY23 based on an ROE of 11.0%, pegging the stock to P/BV of 1.1x.

• We tweak our FY22/23 earnings by -20.0%/-18.0% after imputing higher CI ratio assumptions and fine-tuning our credit cost estimates higher.

• The group reported a lower net profit of RM80mil (-21.6% QoQ) in 4Q21. The weaker earnings were due to higher provisions on one non-retail loan which turned impaired.

• 12M21 earnings declined by 5.4% YoY to RM534mil attributed to lower non-fund-based income from a decline in investment income and higher operating expenses.

• Cumulative earnings were below expectations, accounting for 76.7% and 80.9% of our and consensus estimates respectively. The variance to our estimate was due to lower-than-expected net income and higher opex.

• BI’s gross financing picked up pace to 6.5% YoY in 4Q21, outpacing the industry’s loan expansion of 4.5% YoY.

• For consumer loans, house and personal financing remained key contributors. House financing grew 9.1% YoY while personal financing expanded by 7.5% YoY. Meanwhile, growth in vehicle financing and outstanding credit card receivables contracted YoY.

• CASA expanded by 13.4% YoY while term deposits grew by 11.7% YoY. CASA ratio slipped to 35.2%.

• 4Q21 net income margin (NIM), excluding mod loss, expanded 2bps to 2.38% Excluding the mod loss, underlying NIM for 12M21 slipped 3bps YoY to 2.38%.

• The group’s gross impaired loan balance climbed by 47.0% QoQ or RM182mil to RM568mil in 4Q21 due to the impairment of a business loan. We also observe higher impaired loans to the construction sector. BI’s gross impaired financing (GIF) ratio rose to 0.96% in 3Q21 vs. 0.68% in 3Q21.

Source: AmInvest Research - 1 Mar 2022