Investment Highlights

• We maintain our BUY recommendation on Bank Islam (BI) with a lower fair value (FV) of RM3.80/share from RM3.90/share. Our FV is based on an FY23F ROE of 11% leading to P/BV of 1.1x and reflects a neutral 3-star ESG rating.

• We trim our FY22F earnings by 3% after penciling in a lower estimate for non-fund based income. Underlying earnings in 1QFY22 were slightly below expectation, accounting for 18% of our forecast while within consensus estimate, making up 20% of street’s. The variance to our estimate was due to lowerthan-expected non-fund based income.

• The group reported a lower 1QFY22 core net profit of RM116mil (-27% YoY) after adjusting for the additional taxes of Cukai Makmur (RM10.5mil). The weaker earnings were due to lower non-fund based income and higher provisions for potential credit losses. The decline in non-fund based income was attributed to lower gains from sale of FVOCI assets and higher net loss on revaluation of FVTPL securities.

• BI’s 4QFY21 gross financing accelerated to 6.7% YoY vs. 6.5% YoY, outpacing the industry’s loan expansion of 4.6% YoY.

• For consumer loans, house and personal financing remained key contributors. House financing grew 9.7% YoY while personal financing expanded by 10% YoY. Meanwhile, growth in vehicle financing remained subdued and outstanding credit card receivables grew modestly.

• CASATIA (current account, saving account and transactional investment account) ratio slipped to 38.6% in 1QFY22 vs. 39.6% in 4QFY21.

• The group recorded an unwinding of mod loss, which positively impacted its 1QFY21 net income margin (NIM) by 6bps. Excluding mod loss, underlying NIM declined 17bps to 2.3% in 1QFY22.

• The group’s gross impaired loan balances climbed by 7.6% QoQ to RM612mil in 1QFY22 due to higher impairment of household sector loans. As a result, BI’s gross impaired financing (GIF) ratio rose to 1% in 1QFY22 from 0.96% in 4QFY21. 1QFY22 credit cost stood at 29bps, within management’s FY22guidance of 29–31bps.

Source: AmInvest Research - 1 Jun 2022