Investment Highlights

• We maintain BUY on Bank Islam (BI) with a lower fair value (FV) of RM3.10/share from RM3.30/share. Our FV is based on FY23 ROE of 9.3%, leading to a P/BV of 1.0x. No change to our neutral 3-star ESG rating.

• We trim our FY22F/23F/24F earnings by 10%/12%/12% to factor in lower net income margin and higher CI ratio assumptions.

• 1HFY22 earnings were slightly below our expectation, accounting for 43% of our forecast but within consensus, making up 49% of street’s projection. The variance to our estimate was due to lower-than-expected net fund-based income.

• The group reported an improvement in 2QFY22 core net profit at RM133mil (+14% QoQ) after adjusting for the additional taxes of Cukai Makmur. The better core net profit was contributed by higher net fund-based income from loan expansion and lower provisions.

• Underlying earnings in 6MFY22 of RM249mil fell by 29% YoY due to lower non-fund based income and higher allowances for financing loss. 6M22 non-fund based income was dampened by market volatility which saw revaluation losses on FVTPL securities of RM36mil and FX losses of RM12mil.

• Opex grew 8% YoY in 6MFY22, largely driven by higher personnel cost and general expenses.

• BI’s gross financing accelerated to 8.0% YoY in 2QFY22 outpacing the industry’s loan expansion of 5.6% YoY.

• In the consumer loan segment, house and personal financing remained key contributors. House financing rose by 10.6% YoY while personal financing expanded by 12% YoY. Meanwhile, growth in vehicle financing remained subdued and outstanding credit card receivables climbed by 9% YoY.

• CASATIA ratio slipped to 37.8% in 2QFY22 vs. 38.6% in 1QFY22.

• The group’s gross impaired loan balances climbed by 13% QoQ, contributed by higher impairment of loans to the household, manufacturing, construction and the transportation, storage and communication sectors.

• BI’s gross impaired financing (GIF) ratio rose to 1.1% in 2QFY22 from 1% in 1QFY22.

• Credit cost for 6MFY22 of 25bps was within management’s FY22F guidance.

• The stock continues to trade at an attractive valuation of FY23 P/BV of 0.8x with a decent dividend yield of 6%. It remains one of the pure full-fledged financial services providers listed on the exchange.

Source: AmInvest Research - 1 Sept 2022